BRUSSELS (MNI) - Greece's economic situation and the intensification of investor worries that the country might not be able to honour its debt will likely be a hot topic when European finance ministers meet in Brussels this week.

The Greek authorities are under increasing pressure to bring their budget deficit - currently the widest in the eurozone - under control. The European Commission predicts the shortfall will run to 12.7% of gross domestic product this year, more than four times the Commission's stipulated limit of 3% of GDP per year.

The gaping deficit has prompted market fears that Greece won't be able to keep up with payments on its sovereign debt. That has hit Greek bonds. The spread on 10-year Greek yields compared with the German Bund is currently at +193 basis points, which is a widening of 63 basis points from November 12.

Markets question the sustainability of Greek public finances and have priced in a de facto rating downgrade by ratings agency, Standard & Poors, which currently rates Greece at A- and outlook stable. S&P last downgraded Greece on Jan 14.

The 5-year Greek credit default swap is currently trading at 200 basis points, almost the same level as Turkey, which trades at 215 basis points and is rated BB- by S&P Ratings.

Finance ministers from the 16 countries that share the euro will meet Tuesday and will be joined by their colleagues from the remaining 27 EU member states for more talks on Wednesday.

According to Greek newspaper reports, the German delegation at the meeting wants the EU's executive arm to beef up its presence in Athens and its pressure on Greek policymakers to tighten their belts.

So far, Greece's socialist government has rejected claims that it is not in control of the situation. Finance Minister Giorgos Papaconstantinou said his draft 2010 budget will put the country's finances back on track, trimming the deficit to around 9% of GDP through spending cuts and a clamp down on tax evasion.

But insiders say that's not enough to satisfy the European Commission, which wants to see a more concrete path towards sustainability.

That's because investor fears aren't just about the short term. They worry that Greece's finances aren't sustainable over the medium and long term and that the withdrawal of the European Central Bank's extraordinary liquidity operations could provide a second blow to the economy if Greek banks are unable to cope.

"Greek Central Bank lending to commercial banks is currently equal to more than E40 billion or 6% of the total amount of bank lending provided by all the eurozone central banks, well above Greece's 2% share of eurozone economic output," said Ben May, an economist at Capital Economics in London.

"Even if the Greek government decided not to bail out the banking system, in the event that such action were required, the public finances would still be hit indirectly if the financial sector were not able to support the real economy," May added.

Market pressure on Greece is likely to continue, but economists said default in Greece remains an unlikely outcome in the short term.

"Nonetheless, it would be unwise to write off the possibility of a default further down the road," May said.

"Even if Greece does tighten fiscal policy, it will still remain at the mercy of the markets. If investors demand a higher return for lending to the government, then the task of reducing the debt burden will become that much harder," he said.