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Greece agrees new spending cuts to keep bailout

Leaders of Greece's fragile coalition government have agreed 11.5bn euros (

9bn) in new spending cuts needed to keep its EU/IMF bailout.

The cuts were required for Greece to qualify for the next 31.5bn euro

instalment of the 130bn euro loan.

Without the funds, Greece would face bankruptcy and probably leave the euro.

The deal came after the two junior coalition parties shelved demands for an

immediate renegotiation of the bailout terms to delay the cuts.

Conservative Prime Minister Antonis Samaras has argued that Greece must regain

credibility before it can ask its international creditors for an extension to

its 2013-4 austerity deadline.

"The prime minister said that it must be accepted - as a necessary condition

for our country to remain in the eurozone and to be able to negotiate further -

to cut public spending by another 11.5bn [euros]," Finance Minister Yannis

Stournaras said after the meeting.

"That position was accepted."

He said the government would finalise the cuts by the end of August and would

seek to "minimise the social effects".

The austerity measures are expected to include new reductions in state benefits

and pensions.

Fairness

The leader of the socialist Pasok, the second-largest party backing the

government, said he had temporarily set aside demands for an immediate

renegotiation in order to avoid early elections.

Troika

The term used to refer to the European Union, the European Central Bank and the

International Monetary Fund - the three organisations charged with monitoring

Greece's progress in carrying out austerity measures as a condition of bailout

loans provided to it by the IMF and by other European governments. The bailout

loans are being released in a number of tranches of cash, each of which must be

approved by the troika's inspectors.

"If the prime minister feels that immediately adopting the measures worth

11.5bn euros will safeguard future loan releases and the country's place in the

euro, I am forced to accept his view," Evangalos Venizelos said.

Both he and Fotis Kouvelis, leader of the the third coalition party, the

Democratic Left, said they would continue to fight for a renegotiation, and

insisted that the burden of the cuts should be fair.

Greece's "troika" of international creditors - the EU, International Monetary

Fund (IMF) and European Central Bank (ECB) - have said they will not release

the next bailout payment if they are not satisfied by next month that Greece

has made sufficient progress in implementing spending cuts and economic reform.

The country has received two massive bailouts - one for 130bn euro this March

and one for 100bn euro in May 2010 - to allow it to continue payments on its

vast public debt and stay in the eurozone.

Cuts in public spending, benefits, pensions and public sector salaries imposed

as as result of both loans have led to severe economic hardship.

Last week, Mr Samaras said Greece would suffer a much deeper recession than

thought this year, with the economy shrinking by 7%, rather than the 5%

originally forecast.