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 Greece 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.

Papademos has about 100 days to start fulfilling the terms of a 130 billion euro (112 billion pound) bailout plan to keep Greece solvent.

He must also ease tension among political leaders whose wrangling ahead of a snap election scheduled for 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 ahead.

In Athens, people were optimistic that switching from politicians known for seeking personal gain to a proven policymaker could arrest the country's deep economic slide.

I am really happy he's not a politician... Politicians are responsible for this situation. So it's better to have technocrats governing us, said Maria Apostolou, a 42-year-old who works in the hotel business.

Papademos held talks on Thursday with representatives from outgoing Prime Minister George Papandreou's Socialist party and the opposition New Democracy led by Antonis Samaras.

A government statement said on Friday Socialist party heavyweight Evangelos Venizelos would remain finance minister when President Karolos Papoulias swears in the new cabinet.


For Greece to get an 8 billion euros aid tranche it needs to avoid running out of cash next month, Papademos must pass an austere 2012 budget and make plans to sell off state-owned companies and tackle tax evasion.

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 rose 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 on October 27 to include more cash and induce private creditors to take bigger losses on Greek bondholdings.

But despite the agreement on the unity government, many economists believe a Greek default is inevitable.

Its debt load amounts to more than 30,000 euros for each of Greece's 10.8 million people. At 162 percent of annual output, it is double the EU average of 85 percent and triple the 62 percent owed by Argentina when it fell into default in 2001.

That is now hitting the economy. On Friday, energy traders said Greece was relying on Iran for most of its oil because it was unable to get financing for supplies from Russia, Kazakhstan, or Azerbaijan.

Automotive giant Daimler also spoke out against keeping Greece in the euro zone at all costs.

I wouldn't consider one link splitting off from the rest as a 'break-up' of the euro zone, Chief Executive Dieter Zetsche told Reuters in an interview.

In an October 21 column for the Financial Times, Papademos 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 -- fuelling increasing outrage among Greeks struggling to stay afloat.

The measures that have already been announced will be imposed, said civil servant Yiannis Papageorgiou, 57, referring to a wave of pay and pension cuts, public sector layoffs and privatisations 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. But the European Commission said Greece's bailout lenders would make it a condition.

This is a condition that was made by the Eurogroup, and as far as we are concerned, we consider that this Eurogroup request is still valid, spokesman Olivier Bailly said.

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