Europe’s financial crisis eased as Greece installed a respected economist to replace its prime minister — hoping that a monetary expert can do better than the politicians who drove their nations so deeply into debt.
The announcement on Thursday in Athens quieted market fears, at least for now, that turmoil in Europe could threaten the global economy, but significant challenges remain.
New Greek Prime Minister Lucas Papademos, a former vice president of the European Central Bank, must quickly secure the crucial loan installment without which his country will go bankrupt before Christmas, and approve the EU’s 130 billion euro (US$177 billion) bailout deal.
The EU has warned that the 17-nation eurozone could slip back into “a deep and prolonged” recession next year amid the debt crisis. The European Commission predicted the eurozone would grow a pallid 0.5 percent next year — much less than its earlier forecast of 1.8 percent. EU unemployment was forecast to be stuck at 9.5 percent.
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 Greece, Papademos called for unity and promised to seek cross-party cooperation to keep Greece firmly in the 17-nation eurozone.
“The participation of our country in the eurozone is a guarantee for the country’s monetary stability. It is a driver of financial prosperity,” Papademos said after getting the mandate to form a Cabinet on Thursday. “I am not a politician, but I have dedicated most of my professional life to exercising financial policy both in Greece and in Europe.”
The 64-year-old Papademos, who also served as Bank of Greece governor, will lead a government backed by both Greece’s governing Socialists and the opposition conservatives until early elections, tentatively set for February. He replaces former Greek prime minister George Papandreou midway through his four-year term, ending a family dynasty that has dominated Greek politics for decades.
Papademos was to name his Cabinet yesterday, after which the ministers will be formally sworn in. Many key ministerial positions are expected to remain unchanged, with Finance Minister Evangelos Venizelos widely expected to retain his post. Venizelos was deeply involved in negotiating the European rescue plan.
Greek analyst Platon Monokroussos said hopes have been raised that the new prime minister will help the country regain its lost international credibility.
“Of course, the new government will fight an uphill battle to implement a very austere adjustment program in Greece, very significant structural reforms, and this creates a lot of challenges,” said Monokroussos, who heads financial market research at Eurobank. “But overall, today’s outcome is positive.”
European officials greeted the Greek news with relief.
“The agreement to form a government of national unity opens a new chapter for Greece,” a joint statement by European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy said.
They stressed that “it is important for Greece’s new government to send a strong cross-party message of reassurance to its European partners that it is committed to doing what it takes to set its debt on a steady downward path.”
The interim government’s mandate includes passing the 130 billion euro European debt deal that took months to work out, and ensuring the country receives the next 8 billion euro installment of its initial 110 billion euro bailout.
Under the new deal, private bondholders will forgive 50 percent — or about 100 billion euro — of their Greek debt holdings.
Eurozone officials are withholding the next loan installment until Athens formally approves the rescue package. They have also demanded a written pledge from Papademos, Papandreou, opposition party leader Antonis Samaras, the head of Greece’s central bank and the finance minister.
Many Greeks are angry after 20 months of government austerity measures, including repeated salary and pension cuts and tax hikes to meet the conditions of the country’s first bailout. Despite the belt-tightening, the Socialist government repeatedly missed its financial targets as Greece fell into a deep recession, amid rapidly rising unemployment that surged to 18.4 percent in August — close to double the EU average.
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