More than words

Greece: The Greek government hopes it has put the pin back in the grenade. Its talks with the euro zone, the International Monetary Fund and the European Central Bank were headed towards a major showdown after a fiscal turnaround plan agreed last year as part of Greece's bailout went badly off track. Athens has now come up with pledges of a further tightening amounting to about 2.8 per cent of GDP, as well as jump starting a long-expected privatisation programme. The government has also agreed to consult opposition parties - going some way towards meeting the "troika's" wishes.

Greece's lenders, however, will probably ask for more. The troika's impatience has recently turned into exasperation. Athens was accused of being too slow in tightening its budget after it failed to book revenue as planned: tax evasion, a long-standing problem, is obviously not on the decline. Scepticism will remain about the government's capacity to implement the measures and keep its promises.

The troika wants to push for a new, bolder three-year programme. The problem is not just to unlock the next 12 billion-euro tranche of the current plan, due in June. The country won't be able to tap financial markets next year, as originally scheduled in the bailout plan - leaving a further funding gap of perhaps 50 billion euros over the following two years. And since a three-year plan would go beyond the current parliament's term, the lenders may insist that it is supported by all political parties - along the lines of what has been done in Portugal. Just "consulting" them may not be enough.

Further tough talks therefore look likely when the troika arrives in Athens on May 25. The Greek government will probably balk at being asked to do more than it has just promised, especially since it could imply a further loss of sovereignty. But the troika also needs to stick to credible demands. Ultimately there are limits to the threats it can use: the euro zone can't afford to let Greece go bust.