Athens – Greece and its foreign lenders reached an agreement on Thursday on a five-year austerity plan that Prime Minister George Papandreou must now push through Parliament in order for Greece to stave off default.
Last week, the European Union, European Central Bank and International Monetary Fund, known as the troika, unexpectedly withheld the next installment of $17 billion in emergency aid to Greece over concerns that its blistering program of austerity measures might be falling short of its goals.
That set off a week of market turmoil and political uncertainty in Greece that was calmed on Tuesday after Mr. Papandreou obtained a parliamentary vote of confidence on a new cabinet. Markets recovered from an early swoon on Thursday after reports that Greece and the troika had reached a deal, which includes an additional $5.4 billion in tax increases and spending cuts.
In a news conference in Athens, the new finance minister, Evangelos Venizelos, said that some of the new revenue would come from changes in income tax rules, a $430 annual charge to the thousands of self-employed Greek workers and an increase in the tax on heating oil.
A Socialist Party veteran known for his ability to rally his troops, Mr. Venizelos also dashed any talk of tax cuts — which the center-right opposition had favored. He said the government’s immediate aim was to push the measures through Parliament and secure the release of a new round of emergency financing.
Amid heated debate in Brussels on Thursday, Olli Rehn, the European commissioner for economic and monetary affairs, said that the European Union was prepared to give Greece some stimulus spending — something numerous economists have suggested would help Greece emerge from its “debt trap,” in which it is unable to return to growth while slashing state spending.
But “the first thing is that Greece must help itself so that the other Europeans can help Greece,” Mr. Rehn added. “That’s the bottom line.”
Mr. Venizelos said the Greek government’s key goals were to “regain our credibility, to lay the foundations for more effective negotiations aimed at tackling our fiscal problems and reducing our debt.”
But he added that it was “most crucial” for Parliament next week to pass the bill on the new austerity measures — which will include the sale of about $70 billion in state assets — and a second bill on the fast-track implementation of the previous austerity measures. The two votes are expected next week.
Mr. Venizelos said the recovery program for Greece was based on three “pillars:” completion of the privatization program, the participation of private banks and a new loan from the country’s foreign creditors. He added that next week Parliament would begin debating a “radical overhaul of the tax system.”
Mr. Venizelos said the government was “encouraging” Greek banks to participate in efforts to prop up the beleaguered economy, and he stressed that the program was voluntary. Ratings agencies have made clear that they would regard any forced rollovers of Greece’s debt as a default.
“We most be totally honest with the Greek people,” Mr. Venizelos said. “We must begin now with the implementation of the measures, as we can’t keep asking for more sacrifices. The point is now to keep our heads above water.”