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Greece premier a market choice

November 13, 2011

FORMER European Central Bank vice-president Lucas Papademos was appointed to head the Greek coalition government on Thursday, following concerted pressure from financial markets, the International Monetary Fund and leading European institutions.

Earlier, the financial markets had expressed displeasure with Greece prevarication over the appointment of a new head of government with a wave of selling.

After the announcement that Papademos would be taking over as new prime minister, President Karolos Papoulias immediately sought to appease the markets. He issued a statement in which he pledged that the priority of the new administration would be to faithfully implement Greece’s loan agreements with the Eurozone and IMF.

From the standpoint of international finance, Papademos has impeccable credentials for his new job. From the mid-1980s until the mid-1990s he worked as chief economist at the Bank of Greece before taking over as its head in 1994. He retained this post until 2002, overseeing the country’s preparations for membership in the Eurozone.

Papademos then took up the post of vice president of the European Central Bank and remained in that position until 2010. For the past year he has worked as an adviser to the government of George Papandreou. He was educated in the United States and served briefly as senior economist at the Federal Reserve Bank of Boston.

Lucas Papademos is regarded as a safe pair of hands by his banking colleagues—a man who will take his orders directly from the major financial institutions. His appointment came just hours after IMF chief Christine Lagarde called for greater “political clarity” both in Greece and Italy.

Papademos had also raised his own demands. He requested that any administration he headed be allowed to govern beyond the February 19 deadline already penciled in for new elections. He also demanded that New Democracy deputies be included to ensure a broad coalition to enforce austerity measures.

What is apparent from the events of the past several days is that the selection of Papademos was a pre-condition for Greece’s eligibility for immediate financial aid and access to a new €130 billion rescue package from the European Union and the IMF.

His appointment was predictably welcomed by both Greek and international business and finance organisations. On Thursday, the Athens stock market index was up 3.17, with Greek banks gaining 10.2 per cent.

Dimitris Daskoloupoulos, the head of the Hellenic Federation of Enterprises, proclaimed that the new administration, which he referred to as a “government of national salvation,” was “the last hope for the Greek economy.”

Reflecting the opinion of European business and finance circles, Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, told Bloomberg: “He’s a skilled and thoughtful banker and he’s got sufficient distance from Greek politics to be seen as someone standing above Greek party political corruption.”

Both the Greek Communist Party (KKE) and Syriza, an amalgam of various pseudo-leftist groups, did not take part in the talks and denounced the appointment of Papademos.

Seeking to demonstrate its credentials as a responsible constitutional party, Syriza responded to Papandreou’s decision 10 days ago to sack the heads of Greece’s armed forces to secure a pledge of loyalty of the military. Rejecting the very real danger of a military coup, the organisation warned that the government’s decision “gives the impression that it wants to create a highly politicised armed forces that it can control at a time of political crisis.”

Despite the brief recovery on the Greek stock markets, the economic situation in the country continues to worsen. On Thursday the latest unemployment figures, which drastically underestimate the real extent of the country’s jobs crisis, hit a new record high, rising to 18.4 per cent. The number of unemployed reached 907,953 in August, a 10.7 per cent increase from the previous month. Unemployment rate for youth between the ages of 15 and 24 has soared to 43.5 per cent, twice its level three years ago.

Having installed a technocrat in Greece, financial circles insist that the Italian banker and former EU competition commissioner Mario Monti be installed as new head of government in Italy as quickly as possible.

The dominant sections of the ruling class in Europe are intent on imposing so-called “non-political” technocrats. Papademos and Monti have been selected precisely because they are regarded as figures who are committed to carrying out the dictates of the banks, are distant from domestic political circles, and are sufficiently contemptuous of democratic procedures. Nevertheless, their appointment will do nothing to dampen the deepening crisis, which, according to recent reports, is increasingly spiraling out of control.

According to the Banca Italia, Italian investors shifted euro 80 billion out of the country in August and September in anticipation of state bankruptcy. Greek investors are estimated to have transferred euro 250 billion in recent months to European “safe havens.”

Only recently, leading financial pundits were complaining that European leaders had opened a Pandora’s Box—firstly, by proposing the involvement of private sector investors in a Greek bailout and, secondly, when they speculated on the possible departure of Greece from the Eurozone.

The extent to which the debate has moved on in the past few weeks is indicated by the latest column by the financial commentator Noriel Roubini. Writing in the Financial Times, Roubini concludes that the financial woes of Italy cannot be resolved even with a massive infusion of European capital to reduce its public debt.

In order to tackle its “large current account deficit, lack of external competitiveness and a worsening plunge in gross domestic product and economic activity, Italy may like other periphery countries, need to exit the monetary union and go back to a national currency.” Such a step Roubini is forced to admit, would trigger “an effective break-up of the Eurozone.” Meanwhile, French, German and European officials were forced on Thursday to officially deny that there are active discussions over expelling some countries from the Eurozone, as reported a day earlier.—Courtesy WSWS