Greece’s Coalition Leaders Agree on Bulk of Budget Package

Greek Prime Minister Antonis Samaras clinched agreement with the leaders of the political parties backing his coalition government on the bulk of a two-year 13.5 billion-euro ($17.4 billion) budget package that’s key to receiving international aid.

The accord marked a first step forward for Samaras after weeks of haggling with coalition partners and international lenders, and it came with conditions. Fotis Kouvelis, head of the Democratic Left party, and Evangelos Venizelos of Pasok told reporters the measures needed to be accompanied by firm commitments from euro-region leaders on growth and additional time before they could support the spending cuts in parliament.

“There is a basic agreement,” Finance Minister Yannis Stournaras told reporters after the meeting between the three political leaders in Athens. It “gives me a basis for a stronger negotiation.”

Stournaras has struggled to reach a compromise between party leaders and the so-called troika of officials from the European Commission, the European Central Bank and the International Monetary Fund over how to close the country’s financing gap and free up payments from the 240 billion euros pledged under two rescue packages. Kouvelis and Venizelos have balked at supporting more pension cuts and job layoffs in the fifth year of Greece’s recession, with nearly a quarter of the workforce unemployed.

General Strike

A general strike yesterday drew as many as 35,000 Greeks into downtown Athens for protests that led to violence, with 21 arrests and 8 police officers injured.

“Our European partners undoubtedly are aiding us, but not as much as they could,” Venizelos said in comments broadcast on state-run NET TV. “I don’t think they understood the message of the Greek elections, what’s happening in Greek society, the political situation, what’s happening with social cohesion and democracy in Greece. They must acknowledge the achievements of the Greek people.”

Kouvelis said the package should be submitted to parliament with growth plans and a tax overhaul included. It also needs to include clauses to allow alternative budget measures should the economy recover at a faster pace, he said.

An additional two years will be requested from the European Union and IMF to spread reforms and austerity measures to 2016, Kouvelis said. The demand underpinned the formation of Samaras’s coalition in June after two inconclusive elections revived speculation the country would abandon the euro.

Bank Recapitalization

With Samaras’s New Democracy party holding 128 of the Greek Parliament’s 300 seats, Samaras relies on Pasok’s 33 seats and Democratic Left’s 17 to secure approval of any pledge made to international lenders.

Agreement with the troika is imperative to allow the release of 31 billion euros under Greece’s financing plan. That payment is designed primarily to recapitalize the nation’s banks in a bid to boost liquidity in a cash-starved economy.

Any request for more time may require more funding and will need the approval of the EU and IMF. Stournaras will meet with the troika again on Oct. 1. Finance Ministry officials will brief their euro-area counterparts today on the outlines of the plan. Troika officials will also attend, said an official in Athens who asked not to be identified.

Asset Sales

The IMF has indicated that any additional financing for Greece will have to come from Europe, where officials have told Samaras no discussion can be held on debt relief or extending the time to implement measures until he honors pledges made for the country’s second rescue package.

International lenders held back funds in the wake of the election impasse, which derailed reforms, halted state-asset sales and stoked concerns about Greece’s euro status.

Venizelos said the euro area needed to be aware of the difficulties facing the Greek political system and ordinary Greeks. A full agreement is needed to be brought to the Greek Parliament that will tackle the issue of debt sustainability “in a way that won’t bring us into conflict with other countries and with taxpayers of other countries,” he said.

Alternate Finance Minister Christos Staikouras suggested earlier this week that the ECB and other national central banks in the euro area, who hold 28 billion euros of Greek government bonds maturing by the end of 2016, could roll those bonds over given the country’s financing constraints.

Greece faces a financing gap that won’t be closed by budget measures because the recession and delayed privatizations have further weakened its fiscal situation, International Monetary Fund chief Christine Lagarde said on Sept. 24.

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