• Tweet

Greece’s PM Lucas Papademos has secured a second bailout fund, averting a debt default for the time being

Greek politicians have reached a deal over new austerity measures, the indebted country’s prime minister has announced.

In a statement, the office of Greek PM Lucas Papademos said the coalition partners had come to an agreement on new cuts with its creditors to secure a vital £109bn (130bn euro) second bailout.

Officials have laboured since October to secure the money, needed to make up a budget deficit shortage of about £2.5bn.

The PM’s statement said negotiations with representatives of the European Union, the European Central Bank and the International Monetary Fund, collectively known as Troika, had been successfully concluded.

It said that there was “a general agreement on the content” of Greece’s new financing programme, without which the country would be forced to default on its bond payments next month.

The agreement came hours before a meeting in Brussels of finance ministers from the 17 countries which use the euro, together with the heads of the ECB and the IMF.

The austerity measures were expected to come under further scrutiny, with signals emerging early in the evening that not all countries would agree to the second bailout.

Germany said a final deal would not be reached tonight, although IMF managing director Christine Lagarde praised “very encouraging” signs from Greece ahead of the meeting.

Greece has secured a 130bn euro (£109bn) bailout from its creditors

ECB chief Mario Draghi confirmed the agreement in a news conference earlier in the day.

He said had received a phone call from Mr Papademos just minutes earlier and “he told me that agreement has been reached and has been endorsed by major parties.”

Marathon talks between the socialist, conservative and far-right party leaders backing Mr Papademos’ interim government on Thursday morning had ended with agreement on most of the austerity measures demanded by the country’s creditors to make up the budget deficit shortage.

The politicians signed up to a 22% reduction in the miniumum wage and a total of 150,000 job cuts in the public sector, of which 15,000 will go this year.

But talks faltered over plans to slice even more from pensions, leaving a £524m (625m euro) gap in the deal, raising the prospect that pensions in Greece would have to be cut in the midst of a biting recession to make up the shortfall.

Full pensions are already in line for a 15% cut, according to reports.

Greece’s political leaders came to an agreement on Thursday

Some economists believe Greece is contracting at such a rate the cuts are not severe enough, and believe the ECB may have to make up the shortfall by swapping some of the Greek debt it holds for bonds issued by the temporary bailout fund, the European Financial Stability Facility.

Greece has run up total debt of about £294bn (350bn euros), roughly 160% of its gross domestic product, and the IMF has insisted that level be brought down to a maximum of 120% of GDP by 2020.

Private creditors are also negotiating a write-off of Greek debts worth at least £84bn (100bn euros), and are to meet on Thursday in Paris.

Greece is reliant on international handouts to stay solvent and it faces a £12bn (14.4bn euro) bill on March 20, when it has to pay back bondholders.

Without this second bailout, it could have forced a default, triggering a so-called credit event, which would have severe consequences for the global economy.