Greece Reaches Deal to Form Government

Socialist Pasolk Party head Evangelos Venizelos is making a deal with the New Democracy Party to form a government in Greece. The government will continue the austerity program imposed by the banks., a photo by Pan-African News Wire File Photos on Flickr.

Greece Reaches Deal to Form Government .

By ALKMAN GRANITSAS, COSTAS PARIS and MATINA STEVIS

ATHENS—Greece's conservative New Democracy party leader Antonis Samaras is expected to be sworn in as prime minister later Wednesday, after consensus was reached for a coalition government with the Socialist Pasok party and the Democratic Left party, a spokesman at the presidential mansion said.

Socialist Pasok party head Evangelos Venizelos, left, at a meeting at the party's headquarters in Athens.

Mr. Samaras will meet Greek President Carolos Papoulias to inform him that he has the parliamentary majority to form a government.

The agreement to form a coalition followed closely fought June 17 elections in Greece—the second vote in as many months—that were widely seen as a de facto referendum on the country's bailout and, by extension, Greece's future inside the euro zone. Although New Democracy won the most votes in the elections, it didn't control enough seats to govern and had to seek coalition partners to control a majority in Greece's 300-member parliament. The combined seat strength of the three parties amounts to 179 seats in parliament.

New Democracy party officials said Mr. Samaras is in final talks with Pasok leader Evangelos Venizelos and Democratic Left head Fotis Kouvelis to determine who would be named in the new cabinet.

The officials said only New Democracy will name its own lawmakers in the cabinet while Pasok and the Democratic Left will name technocrats for a small number of cabinet positions and will back the government with a vote of confidence.

Mr. Samaras has so far found few willing volunteers for the all-important role of finance minister. The conservatives have floated two names—former European Commissioner Stavros Dimas and former Development Minister Kostis Hatzidakis—but both men appear to be reluctant to take the job. A compromise candidate, National Bank of Greece SA NBG +14.14% Chairman Vasilis Rapanos—a respected academic—is now seen as the front-runner.

"Samaras wanted Dimas, but early on, even before the election, Dimas had reservations. Other New Democracy heavyweights want to avoid the ministry like the devil, so a nonpolitical figure became the accepted compromise," a New Democracy official said.

The new finance minister will be faced with the unenviable task of bringing Greece's derailed fiscal targets back on track after weeks of political paralysis and come up with €11.6 billion ($14.7 billion) or more of new austerity measures demanded by the country's creditors, which could further inflame the public.

The new government faces many hurdles, with a central administration threatened by a cash crunch within weeks, an economy in free fall and an angry public exhausted by two years of austerity measures.

New Democracy and Pasok have been working on a plan to ask other euro-zone countries for an extra two years to meet Greece's fiscal targets—something that all three parties support. Likewise there has been broad agreement that there should be no further cuts in pensions and salaries, and that the new government should try and ease some of the financial burden on over-indebted households.

Still to be agreed to by the party representatives: New Democracy campaign promises to raise ultralow pensions, lower the top personal income-tax rate to 32% from 45% now, and slash the value-added tax rate paid on restaurant meals.

One other outstanding issue, which has previously divided New Democracy and Pasok, is a plan to unify Greece's multiple property taxes into a single levy.

But even as the party representatives put the final touches on a common plan, the first test of the new government's policy changes may come as soon as Thursday and Friday, when European finance ministers are scheduled to meet in Luxembourg. Greece's desire for a two-year extension on its deficit targets could cost its European partners an additional €16 billion to cover the country's financing needs.

Mr. Venizelos said outgoing finance minister George Zanias will represent Greece in that meeting.

—Nektaria Stamouli in Athens contributed to this article.

Write to Alkman Granitsas at alkman.granitsas@dowjones.com, Costas Paris at costas.paris@dowjones.com and Matina Stevis at matina.stevis@dowjones.com