Tags: EU | Greece | Financial | Crisis

Banker Papademos Named New Greek Prime Minister

Thursday, 10 Nov 2011 07:42 AM

 

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Senior banker Lucas Papademos was named Thursday as the prime minister of the new Greek interim government, charged with keeping the debt-strapped country out of bankruptcy and firmly in the 17-nation eurozone.

After four days of intense political negotiations, the 64-year-old former vice president of the European Central Bank was chosen to lead a coalition backed by both the governing Socialists and opposition conservatives that will operate until early elections in February.

He replaces outgoing Socialist Prime Minister George Papandreou midway through his four-year term.

A statement from the president's office said Papademos would form an interim government that will secure and implement the decisions of a 130 billion euro ($177 billion) European debt deal agreed upon during a summit in Brussels on Oct. 27. That deal is the country's second massive bailout, after a first 110 billion euro ($150 billion) rescue package was deemed not enough to keep Greece from bankruptcy.

The new cabinet will be sworn in Friday afternoon.

The latest Greek crisis erupted last week, when Papandreou said he would put the hard-fought European debt deal, that involves private bondholders canceling 50 percent of their Greek debt holdings, to a referendum. The announcement horrified European leaders, sparked a rebellion in his own party and caused an uproar in financial markets.

Papandreou withdrew the referendum plan and agreed to step aside for a unity government.

Papademos, a former ECB vice president who is not a member of any party, has been operating lately as an adviser to the prime minister.

Shares on the Athens Stock Exchange were up 2.1 percent at 783.28 on the prospect of a power deal. That came despite more bad news for Greece's recession-hit economy: unemployment surged to 18.4 percent in August, up from 12.2 for that month in 2010.

Other eurozone nations have refused to give Greece its latest installment of bailout cash — 8 billion euros ($11 billion) — until the country approves the second bailout deal, which took European leaders months to hash out.

The markets want clarity soon so the new government can secure bailout cash to avoid an imminent bankruptcy that could push Europe into a new recession and world financial markets into turmoil.

Greece's deliberations over the past few days have taken a backseat to developments in much-bigger Italy, where Italian Premier Silvio Berlusconi has announced his intention to resign soon after a new package of economic reforms are passed.

But concerns over a prolonged political gridlock in the eurozone's third-largest economy — Italy is considered too big for Europe to bail out — have roiled the markets. Italy's borrowing costs shot through the roof Wednesday, tempered only a bit by a hasty promise from Italy's president that Berlusconi would be out of office after reforms are passed — likely by Saturday.

Respected Italian economist Mario Monti was also named a senator for life, which puts him in line to run the next government. Monti, 68, now heads Milan's Bocconi University but made his reputation as EU competition commissioner, when he blocked General Electric's takeover of Honeywell.

Europe has already bailed out Greece, Portugal and Ireland — but together they make up only about 6 percent of the eurozone's economic output, in contrast to Italy's 17 percent.

The new Greek debt deal would also see private bondholders cancel 50 percent of their Greek debt holdings — and many analysts fear that Italian bond holders could one day also be required to forgive some of Italy's massive 1.9 trillion euro ($2.6 trillion) debt.

Earlier, the head of the IMF pressed for a quick resolution in both Greece and Italy.

"I believe that many lenders, many investors actually expect something to happen to give political clarity," IMF chief Christine Lagarde said during a visit to Beijing. "It's much needed in Greece, it's much needed in Italy. There is clearly some rumors, trepidation, expectations. No one really understands who is going to come out as the leader, and I think that confusion is completely conducive to volatility."

The European Union, meanwhile warned that the 17-country eurozone could slip back into "a deep and prolonged" recession next year as the debt crisis spins out of control.

The EU's economic watchdog, the European Commission, predicted Thursday that the eurozone will grow only a paltry 0.5 percent in 2012 — way down from its earlier forecast of 1.8 percent growth. EU unemployment will be stuck at 9.5 percent for the foreseeable future.

The report also predicted growth in Italy would slow to 0.1 percent next year, down from 1.3 percent forecast this spring.

It also warned that Italy is unlikely to balance its budget by 2013 if recently promised austerity and reform measures aren't implemented. If those measures don't happen, Italy will still run a deficit of 1.2 percent, with debt close to 119 percent of economic output.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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