Greeks Expect Papademos to Be Named New Unity Prime Minister

Greece prepared for a new prime minister to lead an interim government of national unity as state-run NET TV and To Vima newspaper reported that former central banker Lucas Papademos will accept the post.

Prime Minister George Papandreou said a Greek national unity government will be named “soon” and told his ministers to get ready to resign, spokesman Elias Mosialos said today in Athens.

Both NET TV and To Vima named former European Central Bank Vice President Papademos as the next prime minister, without saying how they got the information. Papandreou and his rival, Antonis Samaras, leader of the opposition New Democracy party, agreed on the Greek unity government to win resumption of international aid.

The government’s mission will be implementing a European Union summit decision on austerity measures from Oct. 26 in order to get a second Greek financing package of 130 billion euros ($179 billion) before leading the country to elections.

Papademos “certainly speaks the language and shares the philosophy of Greece’s EU and ECB counterparties,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. “He is someone who comes in without officially representing a party and can set out the issues and help the population understand better what needs to be done.”

European Stock Rebound

European stocks rose, with the benchmark Stoxx Europe 600 Index rebounding from a two-day decline. Prime Minister Silvio Berlusconi lost his absolute majority in the Italian parliament in a vote today on last year’s budget, further eroding his authority. Ten-year Italian bond yields rose 11 basis points to 6.77 percent, signaling Europe’s debt crisis was intensifying.

The euro rose 0.1 percent to $1.3793 at 7:28 p.m. in Athens, while the MSCI Asia Pacific Index dipped 0.7 percent. Standard & Poor’s 500 Index was little changed after closing up 0.6 percent yesterday.

The yield on the 10-year Greek bond climbed 10 basis points to 27.76 percent, rising for the seventh straight day, while the two-year note yield touched a euro-era record above 108 percent. Greece’s benchmark general index closed 2.4 percent higher at 779.63, the second straight advance since the country’s political leaders agreed to cooperate on a new government.

Letter of Commitment

Papandreou and Samaras will be required to sign a letter of commitment to the Oct. 26 plan, a Greek government official said. The letter to the EU will also need to be signed by the new prime minister and finance minister as well as the head of the Greek central bank, George Provopoulos, said the official, who declined to be named.

The demand drew the ire of Samaras, who said his word should be enough.

“There is an issue of national dignity,” Samaras said in an e-mailed statement. “I have repeatedly explained that, in order to protect the Greek economy and the euro, implementing the Oct. 26 decisions has become unavoidable. I don’t allow anyone to doubt my statements on this.”

Confidence Breached

EU finance ministers expect a written commitment from a “broad-based government of national unity” in Greece after Papandreou’s proposal to hold a referendum on the measures, since withdrawn, was a “breach of confidence” vis-a-vis the EU, the bloc’s Economic and Monetary Affairs Commissioner Olli Rehn said today.

“Now this confidence needs to be mended,” he said.

European finance ministers, meeting in Brussels, pledged to roll out a bulked-up rescue fund next month, leaving Greece and Italy on the side lines until then in the fight against the debt crisis.

Greece needs to provide the written acceptance of bailout terms in order to win an 8 billion-euro loan installment by the end of November, while Italy was pressed to turn budget-cut promises into reality. Greece’s sixth tranche of loans under a 110 billion-euro May 2010 EU-led bailout is needed before the middle of December to prevent a collapse of the country’s financial system.

Deposits Decline

Greek bank deposits in September fell 2.9 percent from the previous month to 183.2 billion euros, according to Bank of Greece data released today. The 5.4 billion-euro drop is the biggest one-month decline since data started being recorded after the country’s entrance to the euro region in Jan. 2001.

George Karatzaferis, leader of opposition LAOS party, who has been one of the most vocal supporters of a national unity government, said yesterday he hoped a new government would be in place “soon before the situation gets out of control and makes its formation impossible.”

The unity government has also received indications of support from former foreign minister Dora Bakoyannis, who has the backing of another three lawmakers in parliament.

The Communist Party of Greece and the Syriza party are opposed to creation of a unity government. About 50 members of the Syriza party’s youth movement hung two banners from the Acropolis today, one in Greek and the other in English, that read “End the governments of banks: austerity is not a solution of resistance,” news site reported.

Trying to preserve international aid before the nation runs out of money next month, Papandreou raced over the weekend to clinch an agreement with the opposition before markets opened.

Bailout Plan

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan agreed at the Oct. 26 summit of European leaders and bankers. 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.

Papandreou’s surrender caps a tumultuous fortnight that started with him securing a second bailout from the EU, then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote, a plan he then dropped. Bowing to pressure from his party and the opposition, Papandreou pledged to stand aside for a government with wider support.

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