Italy Greece to replace leadership during crisis

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ATHENS, Greece — Europe’s financial crisis eased Thursday as Greece installed a respected economist to replace its prime minister and Italy appeared poised to do the same — both hoping that monetary experts can do better than the politicians who drove their nations so deeply into debt.

The announcement in Athens — coupled with the prospect that volatile Italian Prime Minister Silvio Berlusconi will be ushered out soon — quieted market fears, at least for now, that turmoil in Europe could threaten the global economy.

But significant challenges remain in both debt-heavy Mediterranean countries.

Greece’s new prime minister, Lucas Papademos, a former vice president of the European Central Bank, must quickly secure the crucial loan installment without which his country will go bankrupt before Christmas, and approve the EU’s $177 billion bailout deal.

In Italy, lawmakers have to pass new austerity measures over the next few days. However, expectations that respected economist Mario Monti will lead an interim technocratic government after Berlusconi goes helped lift the gloom.

Monti, 68, now heads Milan’s Bocconi University, but he made his reputation as the European Union competition commissioner who blocked General Electric’s takeover of Honeywell.

Still, the European Union warned that the 17-nation eurozone could slip back into “a deep and prolonged” recession next year amid the debt crisis. The European Commission predicted the eurozone will grow a pallid 0.5 percent in 2012 — much less than its earlier forecast of 1.8 percent.

Europe has already bailed out Greece, Portugal and Ireland — but together they make up only about 6 percent of the eurozone’s economic output, in contrast to Italy’s 17 percent. Italy, the eurozone’s third-largest economy, is considered too big for Europe to bail out. It has a mountain of debt — $2.6 trillion — and a substantial portion of that needs to be refinanced in the next few years.

The 64-year-old Papademos, who also served as Bank of Greece governor, will lead a government backed by both Greece’s governing Socialists and the opposition conservatives until early elections, tentatively set for February.

Many Greeks are angry after 20 months of government austerity measures, including repeated salary and pension cuts and tax hikes to meet the conditions of the country’s first bailout. Despite the belt-tightening, the Socialist government repeatedly missed its financial targets as Greece fell into a deep recession, amid rapidly rising unemployment.

Papademos’ appointment followed 10 days of political turmoil triggered by Papandreou’s shock announcement that he wanted to put the latest European bailout deal to a referendum. Fears that the agreement would be defeated led to mayhem on international markets and angered both European leaders and his own Socialist lawmakers.