FACTBOX-Key political risks to watch in Greece

By Ingrid Melander

ATHENS | Mon Nov 1, 2010 8:13am EDT

Nov 1 (Reuters) - Greece is scrambling to cut spending and boost revenues to meet a tough year-end deficit target prescribed in a multi-billion euro EU/IMF bailout.

The debt-choked country has made progress in pushing through reforms but tax collection is still lagging and investors question whether it can sustain these efforts in the face of a bleak economic outlook and social discontent.

Prime Minister George Papandreou has upped the stakes on Nov. 7 and 14 local and regional elections by hinting he may eventually call early general elections if he loses support for austerity policies aimed at pulling the country out of a severe debt crisis.

Investor worries over recession, an approaching revision of 2009 deficit data, and risks of political uncertainty have pressured bond yields and the cost of insuring Greek debt.

Following are the key political risks ahead:

MEETING 2010 TARGETS

Athens is so far broadly on track to meet its fiscal targets for this year but risks remain on weaker-than-expected revenues, local government and health spending.

In order to slash its budget deficit to 7.8 percent of GDP, Greece must offset weak tax revenue growth by keeping spending 4 billion euros below an original target.

What to watch:

- Eurostat's revision of Greece's 2006-2009 deficit and debt data, due mid-November, and its possible impact on the country's finances for this year and the years to come. The revision will show the deficit topped 15 percent of GDP last year, Finance Minister George Papaconstantinou said. [ID:nLDE69Q0PA]

- Ten-month central budget execution figure, expected by mid-November, and the now monthly publication of partial general government budget data. [ID:nLDE69A1ZK] [ID:nLDE69L0VB]

- Whether Greece manages to pay all accumulated hospital debt up to September by year-end. [ID:nLDE69L1UD]

- How Greece will fare in the next EU/IMF review, which will take place from Nov.15 and open the way for a third aid tranche if EU and IMF inspectors are satisfied with Athens' progress.

SUSTAINING THE EFFORTS IN MEDIUM, LONG-TERM

The government will publish the final draft of its 2011 budget on Nov.18, after discussing it with EU and IMF inspectors -- a budget seen key to showing Greece can sustain efforts after front-loading the bulk of the measures this year.

Investors' concerns over a big jump in Greece's borrowing needs in 2013/2014 when it starts paying back the EU/IMF bailout have triggered talk of a possible rescheduling of repayments to the EU and the IMF.

The IMF and the Greek Finance Minister suggested in October that this was an option but Germany opposed the idea and the EU executive played down prospects of extension. [ID:nLDE69C1I8]

For calculations with a spreadsheet model showing the extent of Greece's challenge click on link.reuters.com/heb74p

What to watch:

- Possible changes in the final draft of the 2011 budget, depending on progress on this year's fiscal efforts. [ID:nLDE693195]

- Any further declarations by EU, Greek and IMF officials on what will happen after the three-year bailout expires in 2013.

ELECTION, SOCIAL UNREST

Greeks go to polls on Nov.7 and 14 to elect municipal and regional representatives. It will be the first vote since the Socialists came to power in October last year and revealed that the country's finances had derailed much more than expected, triggering a severe crisis that has shaken the euro zone.

The election will test discontent with EU/IMF-backed austerity measures. Papandreou has hinted he might call a snap election if he loses support from voters, despite having a comfortable majority in parliament. [ID:nLDE6A005M]

Turn-out has dropped at protest rallies as Greeks weary of repeated marches, but analysts warn anger could flare up at any time if the government imposes more austerity, fails to show sacrifices are bearing fruit or eases pressure on corruption.

Rising unemployment and inflation are also two important risks as are plans to privatise some sectors including railways.

What to watch:

- Local and regional elections and any further comment on possible early general election.

- Will opinion polls turn against Papandreou? His ratings are declining but he remains more popular than the opposition.

- Will the government's hard line on a truckers' strike persuade others not to press ahead with protests or will the government bow to pressure if discontent rises or turns violent?

- In the medium term will Greeks keep, however grudgingly, accepting austerity once the deficit starts going down and finances look better?

RECESSION

Analysts warn that pushing belt-tightening too far will deepen the country's recession even further, making deficit-cutting targets much harder to reach.

The IMF and the EU see GDP shrinking by 4 percent this year, which would mark Greece's deepest recession in almost 40 years.

Key indicators show a bleak picture: tax hikes have pushed prices far above the euro zone average; unemployment is seen at 14.5 percent next year; producer prices increase while credit growth slows and retail sales drop.

What to watch:

- Key indicators: Nov.2 - October PMI; Nov. 9 - October consumer price inflation, September industrial output; Nov. 11 - August unemployment data; Nov. 12 - Q3 GDP data.

- What happens with plans for consolidation of the banking sector.

- Whether Greece manages to attract more foreign investment, after Qatar dropped plans in October to build a 3.5 billion euro energy hub in the country. [ID:nLDE69J0O4

DEFAULT, RESTRUCTURING?

Greek and EU officials regularly say that the country will not default but markets are still worried, pressuring banks and insurers exposed to Greek sovereign debt.

Greece successfully started in September issuing T-bills twice a month. Foreign take-up picked up and yields eased for the first time since the debt crisis broke. [ID:nLDE69I0UD]

Its international backers assured investors they would not abandon Athens at the end of the bailout plan if it fulfilled reforms but failed to regain market trust [ID:nLDE68I0D0]

What to watch:

- If yields continue to ease in the upcoming T-bill sales. Auction dates will be Nov. 9 for 13-week T-bills and Nov. 16 for 26-week and/or 52-week T-bills.

- Any details on plans to sell longer-term debt some time next year and to tap Greek money abroad through 'diaspora' bonds.

- Will Greece lose Fitch investment grade and be rated junk by all three major agencies or will rating agencies take a more positive view of Greece as it slashes its deficit? [ID:nSLAKKE6CV]

- Any more comments on the prospect of Greece getting more aid once the 3-year package runs out if needed to avoid default.

For political risks to watch in other countries, please click on [ID:nEMEARISK]