New Greek PM vows to bring in austerity package

Lucas Papademos, a former European Central Bank vice president, has been named prime minister of Greece.

Story highlights

  • EU finance chief Olli Rehn says the recovery in Europe is at a standstill
  • Greece is at a critical crossroads, new Prime Minister Lucas Papademos says
  • European Union welcomes the formation of a new unity government
  • The drama in Greece has shaken international markets

Greece's new prime minister, Lucas Papademos, pledged Thursday to implement a bailout package agreed to with European leaders last month, as the country seeks to regain its footing after a week of turmoil.

The appointment of Papademos, a former banker and European Central Bank vice president, as the country's interim prime minister followed four days of intense political wrangling.

Papademos told reporters the chief task of the transitional government was to bring in the controversial bailout package agreed to on October 26 and the austerity measures attached to it.

He said the government's formation would allow Greece to "face the problems in the near future in the best possible way."

The country is "at a critical crossroads," he said, and the choices it makes and policies it implements "will have a crucial importance for the welfare of the Greek people."

Incoming Greek PM to implement bailout
Incoming Greek PM to implement bailout


    Incoming Greek PM to implement bailout


Incoming Greek PM to implement bailout 02:26

Read a profile of Greece's new prime minister

Papademos' appointment followed days of negotiations over the make-up of a national unity government needed to restore political stability in Greece, and after several days of turmoil that have unnerved global financial markets.

Greek economy mired in recession
Greek economy mired in recession


    Greek economy mired in recession


Greek economy mired in recession 03:02

It is not yet clear who will fill important roles such as finance minister in the new government.

European markets remained mixed Thursday despite the news from Greece, as worries grow over Italy and the broader European debt crisis. U.S. markets were also choppy.

The European commissioner for economic affairs, Olli Rehn, gave a bleak forecast in Brussels Thursday. "The recovery in Europe has come to a standstill, and stagnation of GDP is now expected in the coming quarters and until well into 2012," he said.

"Growth is held back by sharply deteriorating confidence, stressed financial markets and weakening global conditions."

Papademos said Greece's course would not be easy, but that the country's problems would be solved -- and that would happen "sooner, at a lower cost and in a more efficient way, if there is unity, consensus and reasonableness."

Greece's membership of the eurozone, the 17 nations that use the euro as currency, was a sign of financial stability and would aid the country's development, he said.

Papademos said he had accepted the president's mandate to form a unity government because he felt everyone should contribute to the country's recovery. "The task is big, and the responsibility I assume is even bigger," he said.

The new government will be sworn in at 2 p.m. Friday, the president's office said. Fresh elections are likely in February.

European Union chiefs welcomed what they described as "a new chapter" for Greece.

"We have long stressed the need for a broad political consensus around measures to lift Greece out of this deep economic crisis," European Council president Herman Van Rompuy and European Commission president Jose Manuel Barroso said in a joint statement.

The transitional government will have an "extremely intense" workload and must act quickly to reassure Europe it was implementing reforms and driving down debt, the pair said.

"We reiterate that our European Institutions will continue to do everything within their power to help Greece. But Greece must also do everything within its power to help itself," they said.

Papademos, an economics professor at Harvard University, was the governor of the Bank of Greece when the country adopted the euro in 2001.

The 64-year-old has advised outgoing Prime Minister George Papandreou on economic matters for the last two years, the Athens News Agency reported.

A native of Athens, Papademos studied at the Massachusetts Institute of Technology in the 1970s, earning undergraduate and graduate degrees before receiving a Ph.D in economics, the news agency said. He taught at Columbia University from 1975 to 1984 and the University of Athens from 1988 to 1993, the news agency said.

Papandreou's office had said he would resign Wednesday, but that move was delayed until Thursday.

In a televised address to the nation Wednesday, Papandreou said that a government of national unity would do whatever was necessary to bring Greece out of its economic crisis.

The country will be stronger and more secure after it implements the controversial European bailout deal, he said.

Greece wants the international community to see that it knows how to be united in the face of difficulty, he added. "A new season is opening," he said, wishing the new government success.

The outgoing prime minister triggered the political crisis by announcing plans last week to call a referendum on the bailout deal. Agreement on the package had sparked anger from many Greek people, already feeling the pain of earlier austerity measures.

The drama in Greece has shaken international markets, with investors afraid the new bailout deal -- which has stringent austerity measures attached -- may not be implemented.

Christine Lagarde, managing director of the International Monetary Fund, warned Wednesday of the potential for a "lost decade" if nations do not join forces against the "dark clouds" gathering on the horizon.

"The global economy has entered a dangerous and uncertain phase," she said, addressing the 2011 International Finance Forum in Beijing.

"If we do not act, and act together, we could enter a downward spiral of uncertainty, financial instability, and a collapse in global demand. Ultimately, we could face a lost decade of low growth and high unemployment," Lagarde said.