SOCIALIST coalition partners in Greece's government said yesterday that overhauling the country's bloated public sector is crucial for the success of negotiations with international lenders, who are demanding faster reforms as a condition for future payouts.

Socialist leader Evangelos Venizelos met with debt inspectors from the European Central Bank, European Union and International Monetary Fund - collectively known as the troika - and described extensive public sector reforms as a "test of our credibility."

He added: "We should not be afraid of reform. We need it."

Venizelos and a small left-wing party joined historic rival conservatives in a coalition after elections last June. But, so far, the two junior partners have strongly opposed pressure from the troika for mandatory redundancies so that the target of 150,000 fewer jobs in the public sector can be reached by 2015.

The government has insisted the target of cutting staff on state contracts to below 600,000 can be achieved through hiring freezes.

The debt inspectors were due to meet Finance Minister Yannis Stournaras later yesterday to discuss the public sector reforms as well as the stalled merger between Greek lenders National Bank and Eurobank, the country's largest and third-largest by assets once other planned acquisitions are completed.

Greece has been frozen out of the longer-term bond markets since 2010, when its high debts spooked investors, forcing it to ask for international rescue loans. However, the country maintains a market presence with regular treasury bill auctions.

Also yesterday, Greece has raised 1.3 billion euros (US$1.7 billion) in an auction of six-month treasury bills at an interest rate of 4.25 percent, unchanged from an auction last month, the government's Public Debt Management Agency said.