ATHENS - Greek Prime Minister George Papandreou can tap into massive political capital, an unrivalled pedigree and strong international credentials to rescue his country from a severe debt crisis. After a hesitant start, the Socialist moderniser bowed to months of EU pressure and imposed draconian austerity this week, convincing markets to lend him somewhat cheaper money to plug budget holes. That is key to yanking Greece out of a debt spiral that has shaken the euro. "This is a personal bet for him," said Costas Panagopoulos, head of the ALCO polling agency. "He has a high reserve of popular support and he is putting it all on the table. If he wins, he secures his political dominance for a long time." But analysts say deeper recession, trade union opposition, entrenched resistance to reform and wider financial market turmoil could still blow Greece on to the rocks. With a dramatic flair almost equal to that of his flamboyant father, the late premier Andreas Papandreou, he set the stage for salary cuts and tax hikes ahead of visits to Germany and France to seek concrete support from the EU. "We will fight to rescue the homeland, its people and our children from the nightmare prospect of bankruptcy," the US-born former foreign minister told his parliamentary group this week. "We are now in a state of war." So far, markets and EU peers have applauded his moves. Praise for the tough measures poured in from many EU leaders and a 10-year syndicated bond issue on Thursday was oversubscribed. "The measures are a positive sign that the government is really trying to grasp the nettle," said Moody's analyst Sarah Carlson, adding that the agency was looking for near perfect delivery for Greece to maintain its credit rating. Labour unions immediately announced strikes and it will take hard work to keep the backing of a largely sympathetic public once the measures start to bite. Economists say success hinges on a peaceful social front. "The moves will prompt some protests, but the government will see the measures through," Jon Levy, analyst at the New York-based Euraisa Group said. The stakes for the scion of one of Greece's most prestigious political dynasties are high. Some have warned that a collapse of debt-ridden Greece could bring down the single European currency and prove terminal for his political career. "No doubt people understand how serious the situation is and no doubt they blame the previous government. But there is also no doubt they were stunned by the measures," Panagopoulos said. Barclays economist Julian Callow called the austerity plan draconian but warned that, along with other European nations such as Spain, Ireland and Britain, Greece faces a marathon task in the coming years. "The next five years truly look to be an exceptional test of fiscal courage and credibility across western Europe," he wrote. Papandreou won October elections on a tax-and-spend ticket. A sociologist by training, he espoused "green growth" without being fully aware of the dire state of public finances. Soon afterwards, he announced the deficit would be double that predicted by the outgoing conservative government, plunging Greece into a crisis. He initially resisted pressure from markets and the European Union for tough, Irish-style fiscal retrenchment. Critics said it took him too long to understand the urgency of the problem. For weeks he tried to secure concrete EU support in exchange for tough measures, accusing Brussels of having turned a blind eye to his predecessors' dodgy statistics and warning that Greece would turn to the IMF if its partners abandoned it. European leaders, grappling with crises at home, have been reluctant to extend help to a fellow member with chronically unreliable financial data while economists complain that one-off cuts still fail to address Greece's more entrenched problems. "On the expenditure front, we would have preferred a more structural effort on pensions rather than just a one-year freeze," said Tullia Bucco, economist at UniCredit in Milan. With worse than expected economic recession data and looming 20 billion euro debt payments in April and May, Papandreou has now bitten the bullet, bolstered by his large parliamentary majority and a lack of real political opposition at home. The soft-spoken premier, who often seems more comfortable on the global diplomatic stage than in the rough-and-tumble of Greek politics, summoned up his father's soaring rhetoric, shorn of the anti-Western edge that raised hackles among allies. "These are historic times for the country," he told the cabinet meeting that decided on the measures. "For the first time in our modern history we face such a serious problem." If the measures convince markets Greece is serious about putting its house in order, it may be able to raise funds at reasonable rates and EU aid may never need to materialise. But the availability of such aid, if needed, may still turn out to be crucial to maintain confidence. Papandreou has said repeatedly that Greece must repair its credibility. Analysts agree success will hinge on whether Greece manages to cut a 12.7 percent of GDP deficit by 4 percentage points this year and set the foundations of longer term growth.
