Oct. 5 (Bloomberg) -- George Papandreou is set to form a new government to confront the country’s first recession in more than a decade after winning yesterday’s elections by the widest margin in almost 30 years.

The prime minister-elect may also take the finance or foreign ministry portfolio for himself, said newspaper Ta Nea, which regularly supports Papandreou’s Pasok Party. Louka Katseli, Pasok’s chief economics spokeswoman, may become economy minister, state-controlled NET television said. A Pasok spokesman declined to comment on the reports.

“They empowered him to take necessary measures for the economy and he has to deliver, said Anthony Livanios, a political analyst at polling company Athens-based Alphametrics SA. ‘‘He has a very short time and there is no grace period.’’

Papandreou, 57, inherits an economy set to contract this year for the first time since 1993, ending a run of annual growth of about 4 percent. The global recession has slammed shipping and tourism, the country’s biggest industries, and the public debt is set to rise to more than 100 percent of output this year, Europe’s second-biggest debt load after Italy.

President Karolos Papoulias formally asked Papandreou to form a government at a meeting in Athens today after the Socialist leader defeated incumbent Kostas Karamanlis by 10 percentage points, the widest election margin since 1981. Papandreou will likely name his government tomorrow as he seeks to quickly draft a 2010 budget, which is already overdue.

Stimulus Spending

The Minnesota-born Papandreou pledged a 3 billion-euro stimulus ($4.4 billion euros) package to revive growth that includes more public spending and higher wages. He says he will raise revenue to contain the deficit through higher taxes on the wealthy, increasing efficiency in the public administration and fighting tax evasion, a regular promise of Greek politicians from both main parties.

‘‘The problem is when to start tightening fiscal policy -- from other governments we’re hearing if they do it too early it will kill a mild recovery,” said Giada Giani, an economist at Citigroup Global Markets in London. “The second problem is how the government will sell this to the general populace since they clearly don’t seem to want this.”

Greek bonds rose after voters gave Papandreou a bigger- than-forecast 10-seat margin in the 300-seat legislature, quelling concern about a hung parliament and a possible second election this year. The premium to buy 10-year Greek government debt over similar German securities narrowed 6 basis points to 128 points. That brought the spread back to about where it was before the announcement of elections on Sept. 2.

‘Strong Mandate’

“The most important thing is that there was a very clear vote,” said Patrick Lemmens, who helps manage about $14 billion at Robeco Group in Rotterdam, including National Bank of Greece SA shares. “It gives the new government a strong mandate and it’s certainly better than an inconclusive one.”

Stock markets had a more mixed reaction, with the benchmark ASE Index little changed at 2:30 p.m. Athens time after advancing as much as 1.9 percent in early trading. The index gave back gains on declines in shares of state-influenced companies. Papandreou has said he will review the sale of some state-assets including a stake in Hellenic Telecommunications Organization SA, or OTE, to Deutsche Telekom AG.

Shares in other companies such as National Bank fell on the prospect that the government would change management. The government owns an indirect stake of more than 10 percent in the country’s biggest company, which has a value of 14 billion euros. National Bank shares have gained 92 percent this year, more than twice the advance in the Bloomberg Europe Banks index.

Boost for Builders

“There’s a question mark over NBG,” Lemmens said. “I don’t think it will be very wise to replace the current CEO of NBG who has done a great job.”

Among the biggest gainers was Ellaktor SA, the country’s biggest builder, which may benefit from increased public spending. The shares added as much as 3.4 percent to 6.10 euros.

Both Papandreou and Karamanlis hail from Greek political dynasties and it was the third time they ran against each other. Papandreou’s father, Andreas, a two-time prime minister, formed Pasok in 1974. Karamanlis, is the nephew of former premier and New Democracy founder Costas Karamanlis.

Karamanlis called elections in September, two years early, saying he needed a new mandate to confront the weakening economy. The strategy backfired and New Democracy suffered their worst defeat in the party’s 35 years history. They ended up with 94 seats, having lost more than a third of their current representation. Some party stalwarts such as former Economy Minister George Alogoskoufis, failed to get re-elected.

The premier’s popularity sagged after the 2007 elections as he tried to tame the deficit at a time when the Greek economy was slowing and unemployment was creeping higher. Karamanlis’ policies of new taxes, tighter pension rules and selling stakes in companies have prompted strikes and protests. Corruption scandals further undermined his administration.

To contact the reporter on this story: Natalie Weeks in Athens at nweeks2@bloomberg.netMaria Petrakis in Athens at mpetrakis@bloomberg.net

Last Updated: October 5, 2009 09:38 EDT