Lucas Papademos (Eurokinissi)

AMONG several nonparty candidates who have been fielded to head a new coalition government on November 7, former European Central Bank vice-president Lucas Papademos was the indisputable frontrunner to win the post.

 

An aide to the 64-year-old economist said he was expected to arrive in Athens on Monday evening.

 

"I know that he is arriving in Athens this evening," an aide to Papademos, a former European Central Bank vice-president, told Reuters on condition of anonymity.

 

Other names with solid pro-Europe credentials discussed by the main parties and media were former European commissioner and opposition New Democracy deputy leader Stavros Dimas, EU ombudsman Nikiforos Diamandouros and former vice-president of the European Investment Bank Panagiotis Gennimatas.

 

Papademos' principal advantage against the other three highly esteemed candidates was his recent professional engagement as the righthand man of former ECB president Jean-Claude Trichet through the ups and downs of the Greek debt crisis.

 

He should also remain a Brussels favourite for his firsthand experience in the negotiations between Athens and the troika as Papandreou's economic advisor since his retirement from the ECB in December 2010.

 

 

Papademos has also served as governor of the Bank of Greece in 1994-2002 when he acted as a key economic aide to then prime minister Kostas Simitis, who led the country's political efforts to join the nascent economic and monetary union.

 

Some critics have since accused the former central banker of turning a blind eye on the Greek economy's shortcomings and structural imbalances that would later raise doubts about the merits of its accession to the euro.

 

Throughout his eight-year tenure on the ECB governing council, he was considered a staunch supporter of fiscal discipline and budget cutbacks, sharing Trichet's conservative views regarding the limited role which the Frankfurt-based central bank should play in the bailout of overindebted eurozone economies.

 

Papademos also played a key role behind the scenes in the negotiations that led to the July 21 EU summit deal for a second Greek bailout, which introduced voluntary private sector involvement (PSI) in a complex bond exchange that would reduce the present value of privately-held Greek bonds by 21 percent.

 

But Papademos' participation in the original PSI negotiations with the world's major private bankers' lobby, the Institute of International Finance, has probably made him cognisant of the risks and pitfalls of a higher haircut like the one agreed at the October 26 EU summit which called for a 50 percent writeoff on privately held Greek debt.

 

 

Four days before the autumn summit, Papademos published an article in the weekly newspaper To Vima, warning that a deeper haircut than the 21 percent agreed in July could render the revised PSI plan non-voluntary, posing grave risks both to the Greek economy and to the stability of the broader eurozone.

 

"Right now the most effective and prudent path is to apply the agreement European leaders reached in July and strengthen it appropriately," Papademos wrote. "Any changes to the PSI must not put at risk its voluntary character and must not lead to a credit event."

 

The repercussions of a coercive debt restructuring that would be classified as a sovereign default would not be limited to the cost of recapitalising the local banking system and financing the losses of pension funds which together hold over 75bn euros of Greek bonds.

 

"If there is a non-voluntary debt restructuring and default of a eurozone country, the risk that the problems spread to banks may be broad and significant. The recent abrupt increases in the bond yields of eurozone member states send clear, warning signals," Papademos wrote.

 

This is probably the only reason for Papademos to politely decline an invitation by President Karolos Papoulias to head a new coalition government, whose main task would be to renegotiate a PSI scheme which the central banker would not gladly endorse if he had a choice.

 

Papademos, 64, was educated at Massachusetts Institute of Technology (MIT) in America during the 1970s, when he received a degree in physics, a masters’ in electrical engineering and a doctorate in economics.

 

Papademos has held academic positions at the universities of Columbia, Harvard and Athens. After a stint at the Federal Reserve Bank of Boston, Papademos joined the Bank of Greece as chief economist in 1985, rising to the position of governor in 1994.