Europe News

Tensions remain as lenders return to Greece

Greece: 'social fabric is fraying'

"It is normal" said the staff at one of Athens leading hotels as they pulled up the shutters after about 500 anarchists ended their protest against the death this week of a rap artist at the hands of a supporter from the far-right Golden Dawn party.

The speed at which the shutters came down at the hotel entrance shows how well Athens hoteliers and businesses know this drill but it also highlights the tensions in a country that has been through a great deal of political and economic pain.

The rise of parties like Golden Dawn and the left-wing Syriza party is a major worry for Greece's political establishment. Having taken it in turns to rule Greece, the center-right New Democracy party and the socialist PASOK can now only do so by forming an uneasy coalition forced upon them by Greek voters angered by the collapse of their economy.

Greece has been bailed out to the tune of nearly €240 billion since 2010, after its crippling debts meant it could no longer finance itself. The country has had to impose harsh spending cuts and reforms in return for these loans. The austerity measures have hit Greece's economy – unemployment currently stands at around 27 percent and the country is in its sixth year of recession.

Read more: Greece's problems are still Germany's problems

As inspectors from the"Troika" of Greece's international lenders -- the other euro zone countries, the European Central Bank and the International Monetary Fund --return to Athens this weekend, they will be aware that if they demand to much from the current government, they may be dealing with another set of politicians reluctant to take their medicine.

"They are aware of this" said a source close to the Greek finance ministry told CNBC on Friday. "It will form part of the negotiation that starts this weekend"

In case that message needed ramming home, Syriza's leader, Alexis Tsipras, is in Germany ahead of this weekend's election.

"I traveled a few thousand kilometers to look you in the eye and to tell you one fact. I hear what Mrs Merkel and Mr Schaueble are saying, that you are paying taxes to save Greece. Yes, you are taxed but not to save Greece, but to save the Greek banks which in turn means that the German banks are being saved."

Negotiations with the Troika take place under very different conditions than previous talks about releasing bailout funds. If the country is found to have failed to meet the conditions of its loans, the Troika can decide to withhold further funds. However, this time Greek finance minister Yannis Stournars said this week that the country's economy returned to growth in the second quarter and predicted better times ahead in 2014.

At the European level, ministers have told CNBC they expect Greece to need more money to make up for its funding gap with a figure of between €10-15 billion ($13.5-$20.3 billion)expected to be needed by Athens. The tone coming from Brussels and Berlin is one of resignation rather than outrage, as it had been this time last year.

That is not to say Greece is being welcomed back into the fold with open arms. The ECB's Jorg Asmussen was quoted in Die Welt this summer as saying the current Greek Deputy Prime Minister had asked him to reorganise the Greek figures to make them appear better for the Troika. This was denied as false by the deputy PM's office when asked by CNBC and both the ECB and Asmussen have also denied he said this since the article was published.

It may be easy to doubt both sides of this story but the story shows the tensions that remain over Greece's ability --and desire -- to deliver on reforms and the Troika's ability to buy promises on reforms from Athens.

Read more: Greek premier pleads for halt to violence

One former Greek minister told CNBC that Stournars needs to start thinking outside of the box on reform and stop being led by the Troika and their demands on reforms. This is something the Greek finance ministry rejects.

"Preparing for and then negotiating with the Troika does take a lot of time but real work is being done. In collaborating with the Troika, what is happening is reviving the Greek economy" said the finance ministry source.

As well as cutting spending,Greece needs to cut through the mountains of red tape that are smothering the country's economy. One person who says he has suffered at the hands of Greek bureaucracy is Jason Bontempo, the managing director of Glory Resources which is investing in gold mines in Northern Greece. Having injected over 50 million dollars, he told CNBC it is proving very difficult to cut through red tape in Greece and get the government to listen to his concerns. "I have been waiting 6 months for a drilling permit" said Bontempo.

The finance ministry claims it is working hard to attract investors pointing to positive meetings with the credit rating agencies and a bill being worked on by the Greek parliament to offer tax breaks to international businesses investing in Greece.

"We can offer investors a stable environment, an economy that is being restructured, an economy that is correcting and removing the barriers of the past" said the source close to the finance minister.

An IMF report published following the previous review of Greece's bailout program noted that the economy is rebalancing, not through structural reform – but recession.

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