Greeks welcome news on PM, await crisis cabinet

ATHENS (Reuters) - Greeks lauded the nomination of new prime minister Lucas Papademos on Friday and expressed hope his government could put the economy back on track and calm political turmoil that has threatened to force Athens out of the euro zone.

But Papademos, a former vice president of the European Central Bank, faces serious challenges at the helm of a new unity government forged this week after a chaotic power struggle between Greece's two main political forces.

With a battle raging in Italy over a similar emergency cabinet, Papademos has 100 days to start fulfilling the terms of a 130 billion euro bailout plan aimed at keeping Greece solvent even as economists voice doubts over the euro zone's future.

He must also ease tension among political leaders whose wrangling ahead of a snap election scheduled for early next year roiled global markets and drew rebuke from the European Union.

Most Greek media splashed headlines such as A New Era and Hope Returns on their front pages on Friday, while warning that there would be challenges.

In Athens, people were optimistic that taking the reins from politicians known for putting personal gain ahead of national interests and handing them to a policymaker with a proven track record could arrest the country's deep economic slide.

It won't be easy for Greece to get out of the tunnel but I hope Papademos will lay the ground for the Greek economy's revival. It's a good start, said Maria Apostolou, a 42-year-old trainer as she waited for a bus in central Athens.

I am really happy he's not a politician... Politicians are responsible for this situation. So it's better to have technocrats governing us.

Papademos concluded talks on Thursday with representatives from outgoing Prime Minister George Papandreou's Socialist party and the opposition New Democracy led by Antonis Samaras with no sign of an agreement on a cabinet list.

Sources in the two parties said Socialist party heavyweight Evangelos Venizelos would likely remain finance minister when President Karolos Papoulias swears in the new cabinet, scheduled for 1200 GMT (7 a.m. ET) on Friday.

STRUGGLE AHEAD

Papademos must pass an austere 2012 budget, sell off state-owned companies, tackle rampant tax evasion and start chipping away at a mountain of debt under a bailout agreed among euro zone leaders last month.

Papademos's appointment was welcomed by economists who said he was a safe pair of hands who was less likely to waver on tough decisions than politicians.

Greek bank stocks continued the recovery enjoyed since Papandreou ditched his plan to put the bailout to a referendum, rising as much as 4 percent. The euro held steady above Thursday's one-month low against the dollar on uncertainty over political developments in Italy.

Papademos, a 64-year-old academic, is expected to push for Greece to meet the commitments outlined under its bailout deal, which was expanded last month to include more cash and induce private creditors to take bigger losses of 50 percent on their Greek bondholdings.

Key to that task will be tackling a debt load the European Commission estimates at 162 percent of annual output this year.

That is far above the EU debt average of 85 percent of gross domestic product and the 62 percent owed by Argentina when it fell into default in 2001, figures that lead many economists to say there is no way Athens can escape default.

In an October 21 column for the Financial Times, he said an involuntary default may have short-term benefits for some but would eventually impose a much greater burden on European taxpayers. The only way forward was to pursue reforms.

There are no free lunches for debtors and no easy solutions for creditors, he wrote.

The initial optimism masks the fact that many Greeks still bridle at the idea of more tax hikes and cuts to public salaries and pensions after austerity measures expected to send the economy into a fourth straight year of recession.

Unemployment hit a euro era high of 18.4 percent in August -- the height of the tourist season when packed hotels and teaming beaches usually translate into jobs -- fuelling increasing outrage among Greeks struggling to stay afloat.

The measures that have already been announced will be imposed, said Yiannis Papageorgiou, a 57-year-old civil servant, referring to a wave of pay and pension cuts, public sector layoffs and privatizations agreed under the bailout deal.

But at least I hope that the new government will not take any further measures because until now Greek workers have been the only ones who have been paying for the crisis.

Continuing months of protests that erupted in violent clashes between demonstrators and police last month, about 8,000 Communist party supporters marched past parliament on Thursday night, chanting no more austerity.

Papademos also faces a strike-happy public sector, while political pundits say the two main parties will likely distance themselves from tough measures as they jockey for position ahead of an election initially slated for February 19.

Sources say New Democracy's leader Samaras nearly torpedoed the unity government deal after Papademos demanded parties sign a pledge to back reforms agreed with Greece's international lenders.

(Additional reporting by Tatiana Fragou and Ingrid Melander; Writing by Michael Winfrey; Editing by Myra MacDonald)