Papademos: Ex-central banker who won a bailout

AP News
Posted: Feb 22, 2012 10:12 AM
Papademos: Ex-central banker who won a bailout

Just after accepting the least-wanted job in Greece more than three months ago, Lucas Papademos pointedly remarked that he was not a politician.

But the former central banker, appointed interim prime minister with the Herculean task of staving off bankruptcy and keeping Greece in the single currency group he helped the country join in 2001, has developed a knack for knocking notoriously fractious party leaders' heads together.

Holding together an unlikely coalition, Papademos, 64, has since succeeded in getting two-thirds of the Greek Parliament to impose hugely unpopular cutbacks on an austerity-weary nation, winning one of the most crucial votes in the country's modern history on Feb.13.

And in the early hours of Tuesday, he achieved the main mission of his brief interim mandate: To secure euro130 billion ($172 billion) in rescue loans out of Greece's increasingly unwilling European partners and the International Monetary Fund, while wiping euro107 billion ($141 billion) off the country's privately held debt to help stave off a potentially disastrous default on its bond payments next month.

"It's no exaggeration to say that to say that today is a historic day for the Greek economy," Papademos said after the agreement early Tuesday.

Failure to secure the bailout would have been catastrophic, with Papademos warning of "uncontrollable economic chaos and social explosion." Greece would have defaulted on its debts late next month, and might well have been forced to revert to a heavily devalued form of its former national currency, the drachma.

The deal has come at a price, however. The country has agreed to change its constitution, to give priority to debt servicing payments that will be put directly every quarter into a segregated account. On top of this, the Greek Parliament has agreed to a stringent round of austerity measures and the leaders of the country's political parties have pledged to continue with the cuts and controls should they come to power.

According to the terms of his political appointment, the unelected Papademos could soon step down, ahead of national elections originally set for this month but put off for late April due to delays with the twin deal.

The Massachusetts Institute of Technology-educated economist is in a peculiar position: he is currently more popular than most of the elected politicians Greeks blame for nurturing the bloated, inefficient, spendthrift and corrupt public sector their parties built over the past four decades.

However, his critics in Athens see Papademos as the messenger for their country's creditors.

And Papademos has also seen his popularity decline as Greece enters a fifth year of deep recession with a million people _ more than a fifth of the work force _ unemployed. A Public Issue poll for private Skai TV and Kathimerini newspaper found that positive opinions of Papademos have fallen from 55 to 46 percent over the past three months, while negative opinions rose from 18 to 48 percent.

Papademos' selection in November followed 10 days of political chaos triggered by the shock announcement by his Socialist predecessor, George Papandreou, that he wanted to put the European bailout deal to a referendum. Fears that the popular vote could scupper the agreement led to mayhem on international markets, infuriated European leaders and triggered a revolt among Papandreou's own Socialist lawmakers that led to his resignation.

The subsequent interim coalition headed by Papademos is an historic marriage of the Socialists with the conservative New Democracy party _ bitter political foes that have ruled Greece in turn over the past 37 years of democratic government since the fall of the 1967-74 military dictatorship.

Officials from some of the other 16 countries that use the euro privately express disappointment with Papademos' record, drawing unfavorable comparisons with Italy's Monti, a former Commissioner who took over about the same time following political turmoil.

Both countries are struggling with recession _ albeit on different scales. Italy's gross domestic product of euro1.91 trillion ($2.53 trillion) shrank 0.5 per cent in the last three months of last year compared with same period in 2010. Greece's economy _ which stands at euro225 billion ($297.5 billion) _ fell 7 per cent in the same timeframe.

Monti managed to ease market pressure on Italy by quickly passing reforms through parliament and giving the country a respectable face after the antics of his predecessor Silvio Berlusconi.

But in contrast to Papademos, Monti was able to appoint outside experts _ bankers, diplomats and business executives _ to his 18-seat cabinet and not politicians, a difference that has been noted in Brussels.

Papademos' 45-member cabinet is cluttered with ministers left over from the previous Socialist government, some of whom seem more preoccupied with running for the party's leadership or bickering with the conservatives, rather than getting the job done. During extensive riots the night Parliament approved the new austerity measures, police were unable to prevent vandals from burning, smashing and looting more than 100 Athenian businesses. Illegal immigration remains unchecked, while crime rates are high.

"The government of Mr. Papademos is not a technical team," European Commission spokesman Amadeu Altafaj Tardio told a journalist who accused the EU of installing a technocratic regime in Greece. "I invite you to look closely at the composition of the government."

Born in Athens in the middle of the Greek civil war in October 1947, Papademos initially trained as a physicist before studying electrical engineering and economics at M.I.T. His thesis supervisor, and mentor, was the late Franco Modigliani, who received the Nobel Prize for Economics in 1985 for his work on household savings and the dynamics of financial markets.

Papademos taught at Columbia University from 1975 to 1984, successively as a lecturer, assistant and associate professor, before returning to Greece to become chief economist at the Bank of Greece from 1985 to 1993. He had already had a taste of central banking as a senior economist with the Federal Reserve Bank of Boston, in 1980.

In 1993, the newly elected Socialist government appointed Papademos deputy governor of the Bank of Greece. He rose to the helm a year later after helping fend off a speculative attack on the drachma.

As governor from 1994 to 2002, Papademos presided over a regime of declining interest rates and increasing independence from government interference that was crucial in helping Greece secure membership in the eurozone. His record helped him become vice president of the European Central Bank in 2002, where he stayed until 2010.

Papademos recently served as an unpaid adviser to Papandreou.

In his first speech to the Greek Parliament following his appointment, Papademos laid out how he would like his time in office to be remembered: "I hope that this government's administration will not be an interval, but rather a bridge that will ease the country's transition to fiscal balance and sustainable development."


Gabriele Steinhauser in Brussels contributed.