Papademos to be sworn in as premier to avert Greek collapse

Lucas Papademos, a former vice president of the European Central Bank who will be sworn in as prime minister of a Greek unity government today, faces the immediate task of securing funds by implementing budget cuts to avert an economic collapse.

Papademos and his Cabinet, which has yet to be named, will be sworn in at 4 p.m. local time in Athens, according to state- run NET TV. That’s two hours later than previously scheduled as Papademos seeks to put together his government, the broadcaster said, without citing anyone.

Papademos “is determined to keep Greece in the euro area and implement reforms that are needed to keep it there,” Miranda Xafa, senior investment strategist at IJ Partners and an ex-board member for Greece at the International Monetary Fund, told Owen Thomas on Bloomberg Television’s “On the Move” today. He “is a first-rate technocrat with considerable managerial experience who is a step removed from internal party politics.”

President Karolos Papoulias gave Papademos the mandate to form a government yesterday after agreement from Prime Minister George Papandreou, Antonis Samaras, leader of the opposition New Democracy party, and opposition LAOS party leader George Karatzaferis following four days of wrangling after Papandreou said he’d resign.

Greek Aid Package

Papandreou announced agreement on a new government on Nov. 9 after his proposal for a referendum on a second Greek financing package roiled markets and angered Greeks and European Union partners.

“I am not a politician but I have dedicated the biggest part of my professional life to economic policy both in Greece and Europe,” Papademos told reporters after being named. “The Greek economy still faces huge problems despite the huge efforts that have been made for fiscal consolidation and to improve competitiveness. Greece is at a critical crossroads.”

The unity government must implement budget measures and decisions related to an Oct. 26 European bailout amounting to 130 billion euros ($177 billion) as well as manage a voluntary debt swap, before holding elections that have been tentatively set for Feb. 19.

December Deadline

Immediately at stake is the fate of an 8 billion-euro loan installment under an earlier 110 billion-euro EU-led bailout agreed on in May 2010. The tranche must be paid before the middle of December to prevent a collapse of the country’s financial system.

Disbursement was halted by German Chancellor Angela Merkel and French President Nicolas Sarkozy after Papandreou called the referendum, that’s now been scrapped, on the European bailout terms.

“I am confident the country’s participation in the euro zone is a guarantee of monetary stability,” Papademos said. “The country’s participation in the euro zone, despite the difficulties it is facing, will facilitate the adjustment of the economy and growth and we must all be optimistic on the final outcome as long as we are united.”

Evangelos Venizelos will keep his position as finance minister and deputy prime minister, NET TV reported, without saying where it got the information. George Papaconstantinou will remain environment and energy minister, Andreas Loverdos will stay on as health minister and Anna Diamantopoulou will keep her post as education minister, NET said.

Euro Gains

The euro rose 0.2 percent to $1.3631 at 1:49 p.m. Athens time. The MSCI Asia Pacific Index gained 0.8 percent to 116.92 while Standard & Poor’s 500 futures expiring in December rose 0.6 percent.

European stocks advanced, with the Stoxx Europe 600 gaining 0.6 percent to 236.64. Greece’s benchmark general index lost 0.1 percent to 761.71.

The yield on the 10-year Greek bond was little changed at 28.44 percent. Greek two-year note yields surged 103 basis points to 109.12 percent.

The scale of the task facing any new Greek government was underlined yesterday when the European Commission said the country’s debt will be almost twice the size of the economy in 2012 amid a fifth straight annual contraction. The unemployment rate rose almost two percentage points in August, a record monthly increase, to 18.4 percent, the Hellenic Statistical Authority said.

Greek Debt

Greece’s debt will reach 163 percent of gross domestic product this year and jump to 198 percent in 2012, the EU’s Brussels-based executive arm said in its fall economic forecast. That compares with 173 percent predicted by the Greek government in its 2012 draft budget.

Those figures are based on no policy changes and don’t include plans for a writedown of Greek debt that is included in the Oct. 26 plan and may slice as much as 100 billion euros off Greece’s debt burden.

“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,” European Union President Herman Van Rompuy and European Commission President Jose Barroso said in a joint statement yesterday in Brussels. “The voluntary bond exchange with private-sector investors should take place as planned at the beginning of 2012.”

‘Default Event’

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan agreed to at the Oct. 26 summit. Its 4 percent notes due in August 2013 now trade at about 35 cents. Fitch Ratings says the agreement with creditors would amount to a “default event” if implemented, while the International Swaps and Derivatives Association says it won’t trigger credit-default swaps.

Papademos, 64, a former governor of the Greek central bank who oversaw the country’s adoption of the euro, was the top choice to lead the unity government, according to a Kapa Research poll of 1,009 people surveyed for To Vima newspaper on Oct. 29.

The government will need the backing of 180 lawmakers in the 300-seat parliament to secure approval for Greece’s second aid package.