Nearly two weeks after Europe's euro-using nations agreed to stand by their most indebted member, a team of International Monetary Fund technocrats arrived in Athens today to check up on austerity measures designed to claw the country out of a debt crisis that imperils Europe's financial future.
The visit marks the first such inspection since the IMF and euro zone countries teamed up last month to chart the blueprint of an unprecedented plan promising emergency loans to Greece if its debt troubles deteriorate.
Greek officials had hoped that the European Union's aid pledge would ease market jitters and lower borrowing costs, allowing Athens to raise the money it needs to roll over maturing debt and interest payments.
But it didn't. Instead, investors fled Greek bonds this week, spiking new borrowing costs to record highs as rumors circulated that that the EU plan was unable to avert a financial meltdown in Europe's most deeply indebted state and that Athens was seeking to renegotiate the rescue plan.
Finance Minister George Papaconstantinou has vehemently denied such designs, but market confidence remains shaky. And with Greek bond prices slipping sharply, the International Monetary Fund dispatched its team of technical experts to determine whether Greece will have to devise yet another round of austerity measures.
"The impression out there," says Thanos Niforos, a leading market analyst, "is that Greece may have escaped the possibility of imminent default. But international investors are wary. And the terms of [the] EU deal are still quite vague and untested."
More importantly, Niforos says, if borrowing costs continue to rise and if the EU plan fails to offset fears and stabilize the situation, then continued uncertainty in the markets "could asphyxiate the country's financial crisis even further."
Facing onerous debts, Greece has so far been able to raise about a third of the amount it needs to defray its payment obligations for this year. It needs an estimated $13.4 billion for May alone -- a daunting challenge after its last bond auction, on March 29, raised a mere $6.7 billion with a yield of 5.9 percent.
That bond sale -- launched days after the EU unveiled the Greek aid deal -- was supposed to reassure markets about Greece's ability to avoid the eurozone's first sovereign default. Instead, it got a lukewarm demand from foreign investors. Local Greek banks snapped up much of the offering and Papaconstantinou tried to spin the sale into a success.
The bond launch, he said, showed that "despite the extremely difficult circumstances, investor confidence in the Greek economy remains strong."
Not exactly. Market confidence, say financial analysts, was merely pinned on the willingness of other governments -- mainly France and Germany -- to do whatever it takes to stop the Greek crisis from leading the rest of the EU's soft economic underbelly -- Spain and Portugal -- to the brink of bankruptcy.
Greece's problems have already walloped Europe's single currency and cast into doubt the extent to which member states are willing to embrace and enforce common financial regulations in the wake of the global financial crisis.
With a budget deficit four times larger than EU rules allow, Greece has been facing months of fierce pressure to puts its financial house in order, moving to slash its yawning shortfall from an estimated 12.7 percent of gross domestic product in 2009 to 8.7 percent this year.
Adding to its woes, Greece's profligate spending has the government debt hovering at about 113 percent, with two-thirds of that owed to foreign banks. Emergency cuts taken last month have done little to restore shattered confidence, pushing the cost of Greek debt to more than three percentage points higher than German bonds.
At one point on Tuesday the yield on Greek 10-year borrowing costs soared over 7 percent, up more than half a percentage point on the day.
Officials now fear that when Greece returns to the credit markets in May, it may be forced to pay much more than Tuesday's 5.9 percent bond yield, putting the nation's budget further out of whack and forcing the government to make use of the joint EU-IMF rescue plan.
"The only feasible bailout is for Greece to proceed with the announced measures to rake in additional revenues and slash public spending," said Michalis Glezakos, a professor of statistics and insurance sciences at Piraeus University. "If it doesn't, then more measures may be in store and that may spell a prolonged period of recession."