Greece's Math Problem

On the Thursday 10 days before lent begins, Greeks turn out in droves to stuff themselves with grilled meat before the 40-day fast. It's known as Tsiknopempti, literally "Barbecue Thursday." With their country at the center of a debt crisis that has world markets on edge and has cast a shadow over the long-term viability of the euro, Greeks this year must have felt as if they were the ones on the grill.

Decades of overindulgent public spending have finally caught up with Greece, which, at $338 billion, is one of the smallest of the European Union's economies but has some of its biggest macroeconomic problems. Greeks and Greek companies are bracing for what's undoubtedly ahead. Although bigger E.U. members, including France and Germany, will essentially keep Greece from going under, the country faces years of belt-tightening, whether Greece does it for itself or the E.U. imposes it from Brussels.

Members of Greece's somewhat insular business community are rooting for the government to summon the willpower to do what it has never done before. But most of them fret that it's not moving fast enough--and that Greece's activist labor unions, which will fight every austerity measure, including wage freezes, will make the socialist government falter. The sense of urgency, though, seems to be finally hitting home. "Greeks have realized in the past 40 days that this is no joke," says Eftichios Vassilakis, vice chairman of Aegean Airlines, Greece's largest air carrier. "We are at a critical moment. Some like to say that Greeks respond best when we're at the edge of the cliff. Well, we're definitely at the edge of the cliff."

Greece isn't alone on the precipice. Together with Portugal, Italy and Spain, it is part of a bloc referred to as the PIGS--PIIGS if you include Ireland. These are the E.U.'s overburdened economies, whose massive debt and high unemployment have investors worried that economic recovery is going to be a lot bumpier than anticipated.

Greece's current financial mess unfolded when the newly elected socialist government revealed in October that the country's deficit was far larger than the previous, center-right government had let on--nearly 13% of GDP. The European Commission blasted Greece for the faulty stats, and the ratings agencies downgraded Greek debt in mid-December, sending yields on government bonds skyrocketing and stirring fears that the country was on the brink of default. In January, Prime Minister George Papandreou announced an ambitious three-year austerity plan, which the government says will reduce the deficit to 2% of output by 2013. "Greece will put its house in order," Finance Minister George Papaconstantinou tells TIME. "To borrow words from an ad: Watch this space."

To which traders said: We've already seen enough. The markets calmed a bit after Brussels announced it would support Greece, although the E.U. didn't offer specifics and imposed a deadline giving Greece until mid-March to show results or risk demands for tougher measures. The real test will be the outcome of the country's next bond offering. "If any other country was making the kinds of adjustments that we are, it would be applauded," says Papaconstantinou. "In our case, they are not sure we are actually doing it."