STROLL through Athens of an evening and the signs of economic distress are obvious. Shops are shut. Even cheap restaurants are half-empty. But Syntagma Square—the focal point for social gatherings, concerts, rallies and riots—is full throughout the night, not with revellers but with protesters denouncing the government's austerity and the ills of capitalism.

These days the liveried doormen in Athens's finest hotels stare out at sleeveless drummers in a protest tent camp inspired by Spain's indignados. Young Greeks talk of sweeping away the kleftes (thieves) in the parliament building above, of their anger with the European Union and the IMF or, more darkly, of revolutionary violence. The prime minister, George Papandreou, has mused about reviving the debating spirit of the ancient agora, but he never imagined such a revolt. One banner demands “George go home” (a reference to his birthplace in America).

Greece is teetering on the edge. It is bankrupt. Worse, the austerity measures and reforms that Mr Papandreou has pushed through are not visibly making anything better. The markets are growing more alarmed about the risk of Greece defaulting on its mountainous debt. For the second time in a year, Mr Papandreou is having to beg European leaders for billions of euros in emergency loans. In return he promises even more belt-tightening, structural reform and the breakneck privatisation of state-owned firms and land. All this is causing fury among both creditors in Europe and party loyalists at home.

What has gone wrong: has Greece broken its promises to act responsibly, or is the reform programme crushing its economy? The latest EU/IMF assessment spreads the blame. Yes, the austerity-induced recession has been deeper than expected. Greece has yet to raise a single euro from fresh privatisations. And after a brisk start, reforms slowed. But European leaders, says the IMF, have made things worse by rattling the markets with “mixed messages” over restructuring Greek debt. The experts say Greece has been the victim of a statistical cruelty: a revision of the data showed that Greece's debt and deficit were worse than previously thought, so it has a steeper climb to recovery.

Even so, if Greece sticks to a revised programme, it should return to growth next year and enjoy a primary surplus (ie, before interest) by 2014. Greek officials point to hopeful signs: the economy grew in the first quarter, export industries are booming and, partly thanks to unrest in the Arab world, more tourists are expected this summer than last. But a closer look at the data reveals a worrying fact: despite sharp tax rises, Greece raised less money in the first four months of this year than a year ago. That is a sign, say some, that austerity is killing the economy, not curing it.

The coming weeks will be decisive. To pay its bills, Greece needs the tranche of loans due next month. They are being held up by several interconnected problems. The first is that Mr Papandreou must secure backing for a detailed reform programme. Members of his PASOK party are recalcitrant, not least because the reforms threaten the party's power-base in the unions. The opposition New Democracy (ND) party, damaged by its lies about Greece's parlous finances when it was in government, has declined calls by the EU and IMF to support “failed” reforms (though it supports privatisation). The IMF wants the EU to agree to a bail-out to tide Greece over the next three years, because it will not be able to tap the markets in 2012, as hoped. But Germany and the European Central Bank disagree over whether and how private creditors should share the pain.

In the end, a new rescue will be agreed. If there is one thing on which all Greek parties, including the anti-EU communists, agree it is that Greece must not leave the euro. Antonis Samaras, the ND leader, writes an imaginary banner with his hand: “No restructuring whatsoever. Stay in the euro at any cost.” EU leaders are unlikely to let Greece go under. If their economies are too fragile to reschedule Greek debt, then they certainly cannot bear a messy default. America also wants a solution; a Greek default would be “disastrous for us,” Barack Obama has said.

So the EU will, as ever, muddle through. With time, the hope is, Europe's economies and banks will strengthen; Greece may seem less dire if its economy starts to grow. Economists produce graphs showing how, even with debt peaking at about 170% of GDP, Greece could pay its way. But that needs decades of high growth, tight budgets and benign interest rates. And Greece is one of Europe's most fettered economies, where politicians have piled up debt even in good times and treated the state as a source of pillage and patronage.

The Balkan tiger within

Some economists argue that, precisely because the Greek economy is so sclerotic, it has great potential. Reform-minded Greeks see the crisis as an opportunity to set their country right. They quietly praise foreigners for turning the screws on their politicians. And they point to opinion polls showing that many Greeks favour privatisation, despite the cries that the country is being sold out. Yet releasing Greece's energy would take an uncharacteristic zeal for the free-market and administrative reform, squeezing out corruption, taking on unions and rioters, reaching lasting cross-party consensus for fiscal discipline and more. Can the Greeks be more Scandinavian and less Balkan?

Perhaps with decisive leadership. Yet even some of Mr Papandreou's backers think he lacks boldness. Many EU leaders also think Mr Samaras is irresponsible in his criticism of the EU-backed reforms. To have any chance of success, Greece needs a sense of national purpose. Time is short. Money is leaving the country. If the economy does not revive soon, the mood on Syntagma Square could turn even uglier.





Economist.com/blogs/charlemagne