Greek Leaders Agree on Three-Way Coalition Led By Samaras
By Jonathan Stearns and Marcus Bensasson - Jun 20, 2012 8:44 AM CT

Greek political leaders struck an agreement on a governing coalition that will seek relief from austerity measures tied to emergency loans, with New Democracy head Antonis Samaras set to be the prime minister.
Enlarge image Greek Leaders Poised to Agree on Three-Way Governing Coali

Democratic Left leader Fotis Kouvelis said, “It is possible that in the next few hours, or within the day, a government can be decided.”

New Democracy, which won a June 17 election with almost 30 percent of the vote, will join forces with the socialist Pasok party, which finished third, and the sixth-place Democratic Left. They will hold 179 seats in the 300-member parliament.

“Greece has a government,” Pasok leader Evangelos Venizelos told reporters today in Athens. President Karolos Papoulias will probably swear in Samaras after the two meet at 4 p.m. local time, said an official with New Democracy who declined to be named.

European officials have held out the prospect of flexibility over fiscal austerity for Greece after its election that amounted to a referendum on remaining in the 17-nation euro currency union. Greece has slipped behind budget-cutting targets imposed by the euro area and the International Monetary Fund in exchange for 240 billion euros ($305 billion) in aid pledges over the past two years.

Samaras, Venizelos and Democratic Left leader Fotis Kouvelis have committed to establishing a coalition that will keep Greece in the euro and fight to loosen austerity requirements that have helped drive the country into a fifth year of recession. The government in Athens may seek to push back against required cuts in pensions and the minimum wage and the pace of budget-deficit reductions.
Euro Rises

U.S. stock futures rose, following a four-day rally in the Standard & Poor’s 500 Index. The dollar fell to almost the weakest level in one month against the euro, dropping 0.2 percent to $1.2709 per euro at 8:05 a.m. New York time.

European leaders have sent mixed signals about granting Greece leeway. European Union President Herman Van Rompuy said after the election that “we will continue to stand by Greece,” while German Chancellor Angela Merkel took a tougher line by declaring “there can be no loosening on the reform steps.”

The potential fight ahead was highlighted when European Central Bank Executive Board member Joerg Asmussen, who comes from Germany, said any decision to grant Greece more time while it still has a primary budget deficit means the country would need more aid. Greece’s goal has been to have a primary surplus in 2013.

“As long as a country has a primary deficit,” giving it more time to meet its fiscal targets automatically means “that there is an additional external financing need,” Asmussen said at a panel discussion in Berlin on June 18.
Budget Concessions

The task of winning budget concessions will fall on Vassilios Rapanos, chairman of National Bank of Greece (TELL) SA who is due to be appointed finance minister, according to an official with the Democratic Left.

Rapanos is affiliated to Pasok, which today decided that its representatives in the new government won’t be members of parliament.

Talks continue in Athens among New Democracy, Pasok and Democratic Left on the coalition-government ministers, who may be announced later today. Caretaker Finance Minister Giorgios Zanias will represent Greece at a June 21 meeting of euro-area finance ministers in Luxembourg, said Venizelos.

Venizelos and Kouvelis have proposed to establish a team, including people from outside the ruling coalition, to renegotiate the bailout terms. Venizelos said yesterday that Syriza, the biggest anti-bailout party that finished second in the June 17 vote, refused to take part, a day after it rebuffed calls to join the government.
Rising Skepticism

Euro nations such as Germany, the Netherlands and Finland are increasingly skeptical about Greece’s ability to meet the fiscal-austerity conditions of the rescue.

Greece narrowed its budget deficit from more than 15 percent of gross domestic product in 2009 to 9.1 percent in 2011. The country’s spending gap is due to fall to around 7 percent of GDP this year. Unemployment in Greece has reached a record of more than 22 percent.

European creditors are prepared to ease the bailout terms, said a European official who briefed reporters in Brussels on condition he not be named. A first step will be when Greece’s government requests changes to the rescue terms, leading to a revision of the country’s economic-performance targets sometime before September.

European and IMF budget experts have said they’ll head to Athens for their next review of Greece’s eligibility for the subsequent round of quarterly loan disbursements when a new administration is formed.

Greece will run out of money in mid-July, Syriza said on June 13 after being briefed by the finance ministry’s Zanias.