Papademos is new Greek PM, vows to stick with euro

ATHENS, Greece (AP) _ Greece appointed senior banker Lucas Papademos prime minister Thursday of an interim unity government that will seek to cement a European debt deal and stave off national bankruptcy.

Chosen after four tortuous days of power-sharing talks, 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 his four-year term.

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

The announcement came as Italy wrestled with its own governing crisis, with economist Mario Monti appearing to be in line to run an interim technocratic government after Premier Silvio Berlusconi departs.

Italy's borrowing costs shot up Wednesday on fears that Berlusconi would linger in office, but the markets calmed Thursday when it appeared that Italian lawmakers would approve the latest government austerity plans in the next few days and Berlusconi would resign after that.

Monti, 68, now heads Milan's Bocconi University but made his reputation as the European Union competition commissioner who 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. Italy, as the eurozone's third-largest economy, is considered too big for Europe to bail out. But it has a mountain of debt _ (euro) 1.9 trillion ($2.6 trillion) _ and a substantial portion of that needs to be refinanced in the next few years.

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,'' Papademos said after getting 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,'' Papademos said, stressing the importance of Greece's eurozone membership.

Shares on the Athens Stock Exchange were up 1.6 percent 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 percent 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.''

The interim government's mandate includes passing the (euro) 130 billion ($177 billion) European debt deal that took months to work out, and ensuring the country receives the next, critical (euro) 8 billion ($11 billion) installment of its initial (euro) 110 billion bailout.

Under the new deal, private bondholders will forgive 50 percent of their Greek debt holdings so the country can get its massive debts under control.

Eurozone officials are withholding the next (euro) 8 billion ($11 billion) installment of loans, without which Greece faces default in a matter of weeks, until Athens formally approves the new debt deal. They have also demanded a written pledge from five officials: Papandreou, opposition party leader Antonis Samaras, the head of Greece's central bank, the new prime minister and the finance minister.

``The letter has to arrive,'' said Guy Schuller, spokesman for Jean-Claude Juncker, who chairs meetings of eurozone finance ministers.

Samaras earlier had reacted with outrage to that demand, saying it was an insult to national dignity.

Many Greeks are deeply 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 reforms, the Socialist government missed its financial targets as Greece fell into a deep recession. Furious labor unions held repeated strikes, with many protests degenerating into riots.

The European Union, meanwhile warned Thursday 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 percent in 2012 _ way less than its earlier forecast of 1.8 percent. EU unemployment will be stuck at 9.5 percent.

Papademos' appointment comes after nearly two weeks of political turmoil sparked by Papandreou's surprise announcement that he wanted to put latest European bailout deal to a referendum. The move led to mayhem on international markets and angered both European leaders and his own Socialist lawmakers.

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

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

He taught at Columbia University from 1975 to 1984 and worked at the Federal Reserve Bank of Boston before returning to Greece to become chief economist at the Bank of Greece from 1985-1993.

He was then appointed deputy governor of the Bank of Greece, rising to the helm a year later after helping fend off a speculative attack on the drachma, Greece's pre-euro currency.

As governor from 1994 to 2002, Papademos 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.