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Public servants carry posters reading 'I'm not paying' during a demonstration in Athens on Wednesday.LOUISA GOULIAMAKI/AFP / Getty Images

Constantinos Garyfallou could not hide his disapproval for the protesters who crowded central Athens' Syntagma Square, within metres of his smart little coffee and sandwich shop.

Waving placards and shouting "Today the workers give their reply," the throng vowed to fight the spending cuts announced by the debt-swamped government of Prime Minister George Papandreou.

Mr. Garyfallou said the protesters - most of them civil servants who were part of a nation-wide public workers' strike Wednesday that shut down the nation's airports, schools and tax offices - obviously didn't understand the severity of Greece's financial crisis.

"As a shop owner, I have no sympathy," the 37-year-old businessman said.

"They're part of the problem. They don't justify the wages they receive, and the sheer number of civil servants is incredible."

But the demands of Greece's government workers are a key part of the country's problems, economists say, arguing the country will never be competitive unless the civil service is made more efficient and much smaller.

Greece, with a population of 11 million, has some 700,000 civil servants, making it one of the Western world's most top-heavy countries. (The figure excludes the 300,000 or so who work for regional governments and public-sector companies).

Now Greece's finances are a mess of soaring deficits and debt, and European Union officials, led by Germany and France, are mobilizing to devise a rescue plan in order to prevent a fiscal crisis that could ripple through the continent and the broader global economy.

Euro zone officials held a conference call Wednesday with European Central Bank president Jean-Claude Trichet to discuss Greece's fiscal woes.

On Thursday, European Union leaders are to meet in Brussels to develop potential aid plans for Greece. The options would include debt guarantees or the outright purchase by EU countries of Greek bonds. The leaders will almost certainly pile pressure on the Greek government to provide more details on its planned spending cuts in a bid to reassure the European currency and debt markets. Fears that a Greek default would reverberate through the entire euro zone sent the euro plummeting in recent weeks.

Economists and former politicians say a bailout may buy Greece some time, allowing it to avoid defaulting on its debt. But on its own, it won't juice up Greece's ailing economy.

Any bailout package offered ought to come with demands that Greece reform its economy to reduce the horrendous structural costs that are smothering businesses, some argue.

Economists say Greece made two big mistakes after it ditched the drachma and joined the euro zone - the 16 EU countries that share the euro - a decade ago.

The first was runaway spending. The euro brought in currency stability, low inflation rates and low interest rates. Greece borrowed with alacrity. While GDP rose, debt rose even faster as Greek governments spent and hired with abandon. The bloated employment numbers, combined with ever-rising wages, helped to send debt and deficits in one direction - up - making a financial crisis inevitable even if the credit crunch and recession had not hit in 2008 and 2009.

By last year, Greece's debt as a percentage of GDP was about 112 per cent, more than double that of Spain (another ailing euro zone country) while its budget deficit reached 12.7 per cent of GDP, the EU's highest. The spectre of Greece going bust sent Greek bond yields soaring last week, sending the euro in the opposite direction.

The second was failure to deal with its huge structural costs, the result of excessive government hiring and lack of deregulation. Stefanos Manos, the retired politician who was minister of economy and finance in the early 1990s, launched Greece's deregulation and privatization process. Before he lost his job in 1993, the telecom industry deregulation was well under way and public-private partnerships were put in place. Later, banking was deregulated to some degree. But then the political will to keep going evaporated and the deregulation process pretty much stopped.

Transportation, for instance, was left untouched and truckers expertly defended their turf. Containers are taken from shipping ports to container terminals by truck when rail would be much more efficient. Public notaries, lawyers and other professionals are shielded from competition and get paid a lot for unnecessary work. In a paper he co-authored last year for the Cato Journal, Economic University of Athens economist Michael Mitsopoulos said Greece is held hostage by "kleptocratic interest groups in a closed, rent-seeking society."

The civil service is no better, the economists says. Greece has four times as many teachers per student as Norway, whose education system is considered far superior. Greek civil servants enjoy a constitutional lifetime job-protection guarantee. Entrepreneurs complain about having to get dozens of permits to open a business, or having to pay bribes to bypass them. The European Commission estimates Greece's bloated bureaucracy costs the economy 7 per cent of GDP a year, twice the EU average.

"It's hard to open a business here," said Mr. Garyfallou, the shop owner. "The laws are made in such a way that you have to pay off people."

Mr. Manos isn't getting his hopes up that any bailout package will come with demands for widespread economic reforms, on top of spending cuts, to rein in the deficit and restore confidence in Greek bonds. Freezing the wages of hundreds of thousands of public workers is one thing; firing some of them is another. If firings were to take place, "social unrest is certain," he said.

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