ATHENS (Reuters) - Inspectors from the international lenders keeping Greece afloat return to Athens on Tuesday to relaunch its stalled economic plan and decide whether to keep the nation hooked up to a 130-billion-euro lifeline or let it go bust.
The euro zone member has fallen behind targets agreed as conditions of its bailout deal, mainly due to three months of political limbo as it struggled to form a government after two inconclusive elections but also because of resistance to reforms from unions and special interests.
Earlier this month the troika of lenders - the International Monetary Fund, European Commission and European Central Bank - told the new, conservative-led coalition government that no more funds would be forthcoming unless Greece shows results.
Greece blames a deeper than expected recession, seen at almost 7 percent of GDP this year, for missing its tax revenue and budget deficit goals and wants two more years' breathing space to avoid inflicting harsher fiscal measures on a public already enduring tax hikes, spending and wage cuts and record joblessness.
By the end of this year Greek GDP is expected to have shrunk by about a fifth since 2008, while nearly one in four workers are unemployed.
Troika officials say Athens is failing to implement measures that will boost growth, such as planned privatizations, a major tax reform and the opening of closed markets and professions.
"The program has not produced the desired results because it was not implemented. We must first see the government fulfill its commitments and then decide if it works or if it needs to be adjusted," a troika source told Reuters on condition of anonymity.
A troika team arrived in Athens late on Monday and will begin meetings at ministries early on Tuesday, while the heads of the mission arrive later in the week and are scheduled to see Finance Minister Yannis Stournaras on Thursday.
He is under political pressure to demand a renegotiation of the bailout terms - a key pillar of the coalition with the socialist and the leftist parties, who say the mix of measures is wrong and only punishes the poor.
Stournaras, an economist who chaired a respected think-tank before becoming minister, has said he will not ask for an extension or change of terms before proving the new government's credibility - starting with 11.7 billion euros' worth of cuts for 2013-14 that should have been drawn up in June.
With just days to go before the troika chiefs arrive, the government has come up with only about 8 billion euros' worth of cuts and was scrambling to close the gap, Greek officials said.
In official statements, both the EU and the IMF have said the program was behind schedule and needed to be re-launched before Greece could get any more funds, with the next tranche not expected to be disbursed before September.
"An IMF mission will start discussions with the country's authorities on July 24 on how to bring Greece's economic program, which is supported by IMF financial assistance, back on track," an IMF spokesman said on Monday.
In the meantime, the lenders may have to extend Greece a bridge loan to cover a 2.3 billion euro bond payment due in late August to stop it going bust and putting Italy and Spain in the markets' firing line, but that will also depend on this week's talks.
Analysts say softening the stance on Greece would create problems elsewhere. For example, if the troika agrees to give Greece two more years to cut its deficit to 3 percent of GDP it might have to lend it an extra 40 billion euros, depriving funds from larger troubled members such as Spain, said Ben May of Capital Economics.
"Policymakers face a tough task to reach an agreement on what Greece must do to receive future bail-out loans that is deemed acceptable to all parties. For now, then, we still think that Greece could exit the single currency by the end of the year," he said in a report.
The troika will stay as long as needed, with some officials saying the visit would last at least a week and possibly longer. It may well ask for additional measures this year, which would almost certainly rock the ruling coalition and ignite protests from the radical leftist SYRIZA opposition party.
"The government has no business discussing with three clerks on how to implement a failed program," SYRIZA president Alexis Tsipras told his parliamentarians.
"New tough austerity measures are insane and will lead us to bankruptcy and away from the euro zone."
Reporting by Dina Kyriakidou; Editing by Will Waterman