New Greek PM vows to keep euro

Senior banker Lucas Papademos was today appointed prime minister of an interim Greek unity government that seeks to cement a European debt deal and stave off national bankruptcy.

Chosen after four tortuous days of power-sharing talks, Mr Papademos immediately called for unity and promised to seek cross-party cooperation to keep Greece firmly in the 17-nation eurozone.

The 64-year-old former vice president of the European Central Bank will lead a government backed by both the governing Socialists and the opposition conservatives that will operate until early elections, tentatively set for February. He replaces outgoing Prime Minister George Papandreou midway through a four-year term.

The new Greek cabinet, whose members were not immediately named, will be sworn in on Friday afternoon.

The announcement came as Italy wrestled with its own governing crisis, with economist Mario Monti in line to run another interim technocratic government.

Italy’s borrowing costs shot up on Wednesday on fears that Premier Silvio Berlusconi would linger in office, prompting the country’s president to promise that Mr Berlusconi was likely to be out by Saturday.

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

In Athens, hopes rose that Greece will avoid an imminent bankruptcy that could push Europe into a new recession and world financial markets into turmoil.

“I am not a politician but I have dedicated most of my professional life to exercising financial policy both in Greece and in Europe,” Mr Papademos said after the Greek president gave him the mandate to form a Cabinet.

“The Greek economy continues to face huge problems despite the great efforts than have been made for fiscal reform.”

He insisted Greece must defend its euro membership.

“The participation of our country in the eurozone is a guarantee for the country’s monetary stability. It is a driver of financial prosperity,” Mr Papademos said, adding that just being in the eurozone will help Greece through its troubles.

Shares on the Athens Stock Exchange were up 1.6 % at 779.6 on the news of the power deal power deal. That came despite more bad news for Greece’s recession-hit economy: unemployment surged to 18.4 % in August, up from 12.2 for that month in 2010.

European officials greeted the Greek news with relief.

“The agreement to form a government of national unity opens a new chapter for Greece,” said a joint statement by European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy.

They stressed “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.”

Many Greeks are deeply angry after 20 months of government austerity measures, including repeated salary and pension cuts and tax hikes to get the country’s first, 110 billion euro (£94 billion) international bailout.

Despite the reforms, the Socialist government missed its financial targets as Greece fell into a deep recession. Furious labour unions held repeated strikes, with many demonstrations degenerating into riots.

The European Union, meanwhile 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 will grow a paltry 0.5 % in 2012 - way less than its earlier forecast of 1.8 % growth. EU unemployment will be stuck at 9.5 % for the foreseeable future.

Mr Papademos’ appointment comes after nearly two weeks of political turmoil sparked by Mr Papandreou’s surprise announcement that he wanted to put his country’s new 130 billion euro (£111 billion) European debt deal to a referendum.

Under it, private bondholders will write off 50 % of Greece’s debt so the country can get its massive debts under control and start to pay its own way.

Mr Papandreou’s sudden decision on a popular vote led to mayhem on international markets and angered both European leaders and his own Socialist MPs.

European officials said the call endangered Greece’s position in the eurozone, and are withholding the next, critical eight billion euro (£6.8 billion) bailout payment until Athens approves the second debt deal.

Bowing to pressure, Mr Papandreou agreed to resign and reached a historic power-sharing deal with conservative opposition leader Antonis Samaras on Sunday to form a transitional government.

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

As governor of the Bank of Greece from 1994 to 2002, he presided over an era of increasing independence from the government that was crucial in helping Greece secure membership in the eurozone. He then spent eight years at the European Central Bank.