Bloomberg News

Papademos Keeps Venizelos at Finance in New Greek Government

November 11, 2011

Greece's Interim Prime Minister Lucas Papademos

Greece's Interim Prime Minister Lucas Papademos told reporters, “Greece is at a critical crossroads.” Photographer: Kostas Tsironis/Bloomberg

Greek Finance Minister Evangelos Venizelos will remain in his post in a new coalition government headed by Lucas Papademos that’s charged with the immediate task of securing funds to avert an economic collapse.

Venizelos will stay on as deputy premier as well as finance minister, according to an e-mailed statement from the press ministry in Athens. The government was sworn in today by Archbishop Hieronymos of Athens and All Greece.

“The new unity government will do the best it can to resolve the country’s problems,” Papademos said in a meeting with former Prime Minister George Papandreou after the ceremony. “I believe with the collaboration and unity of all we will achieve the results we want.”

The government must implement budget measures and decisions related to an Oct. 26 European bailout amounting to 130 billion euros ($179 billion) as well as manage a voluntary debt swap, before holding elections that have been tentatively set for Feb. 19. Venizelos is due to have a first meeting with his deputies and officials later today.

Government Mandate

Health Minister Andreas Loverdos, Education Minister Anna Diamantopoulou and Energy Minister George Papaconstantinou will also keep their posts, according to the statement. Anastasios Giannitsis, currently chairman of Hellenic Petroleum SA (ELPE), will head the interior ministry and Stavros Dimas, deputy leader of the main opposition party, New Democracy, and a former European commissioner, will be foreign minister.

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

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

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.

Merkel Halts Funds

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.

The euro rose 0.6 percent to $1.3686 at 5:02 p.m. Athens time. European stocks advanced, with the Stoxx Europe 600 gaining 2.1 percent to 240.34. Greece’s benchmark general index lost 0.9 percent to 755.65. The S&P 500 (SPX) rose 1.8 percent at 10:06 a.m. in New York.

The yield on the 10-year Greek bond was little changed at 28.44 percent. Two-year note yields rose 79 basis points to 108.88 percent.

Greece’s new government includes six members of New Democracy and four members of LAOS as ministers or deputy ministers. Papandreou’s Pasok party has 36 members in the Cabinet. The most senior position held by New Democracy is the foreign ministry post by Dimas, who served as EU environment commissioner starting in 2004 until 2010.

Resurrect Lost Credibility

Dimas, 70, has degrees from the University of Athens and New York University. He worked as a lawyer for the World Bank from 1970 to 1975 and was deputy governor of the Hellenic Industrial Development Bank from 1975 to 1977. He has been elected to the Greek Parliament ten consecutive times since 1977 with New Democracy, holding various posts including head of the energy and agriculture ministries.

The coalition “can resurrect the lost credibility of the political system,” Dimitris Sotiropoulos, associate professor of political science at the University of Athens, said in a telephone interview. “It is extremely important that more than two parties agreed on someone who hasn’t faced the mistrust and suspicion of voters. That can only help the economy as well as restore some faith in political life.”

Scale of Task

The scale of the task facing Papademos and his new team 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.

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.

Germany will support Papademos in his task of overhauling the country, according to a message from Merkel to Papademos released by the German government today in Berlin.

Hopes and Expectations

Papademos faces “great hopes and expectations” and his government will have to undertake “reform measures quickly to lead Greece out of the current crisis,” Merkel said in the note. “Germany will stand by you and the Greek people in the difficult mastering of the common challenges in Europe and the euro zone.”

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

A debate on a motion of confidence in the new government may begin in Athens early next week.

To contact the reporters on this story: Tom Stoukas in Athens at astoukas@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net


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