ATHENS, Greece (AP) — Greece is replacing its prime minister with a banker, and Italy looks likely to do the same with an economist — both hoping that financial experts can do better than the politicians who drove the eurozone into crisis.

Yesterday’s political agreement in Athens after four days of dithering calmed financial markets, coupled with the prospect that volatile Italian Prime Minister Silvio Berlusconi will be leaving office sooner rather than later.

But significant challenges remain in both debt-heavy Mediterranean countries.

Lucas Papademos, former vice-president of the European Central Bank, must quickly secure the crucial loan installment without which his country will go bankrupt before Christmas, and approve the EU’s October 26 euro130 billion (US$177 billion) bailout deal. In Italy, lawmakers have to pass new austerity measures over the next few days.

Papademos called for unity yesterday and promised to seek cross-party co-operation to keep Greece firmly in the 17-nation eurozone.

“The participation of our country in the eurozone is a guarantee for the country’s monetary stability. It is a driver of financial prosperity,” Papademos said after getting the mandate to form a Cabinet. “I am not a politician, but I have dedicated most of my professional life to exercising financial policy both in Greece and in Europe.”

The 64-year-old, who also served as a former Bank of Greece governor, will lead a Government backed by both Greece’s governing Socialists and the opposition conservatives that will operate until early elections, tentatively set for February. Papademos replaces outgoing Prime Minister George Papandreou, midway through his four-year term.

The new Greek Cabinet will be sworn in today. There has been no announcement on its composition, and officials said negotiations continued late yesterday.

But two government officials and two opposition lawmakers said Evangelos Venizelos was expected to retain the critical finance minister portfolio.

“I can’t see how the minister who brought about the October 26 agreement cannot be part of the Government,” said one of the government officials. “He, more than everyone else, knows exactly what needs to be done during the short period that lies ahead (until the elections.)” All four spoke to The Associated Press on condition of anonymity because they were not authorised to discuss the issue.

Papademos’ selection came as Italy wrestled with its own Government crisis, with economist Mario Monti appearing to be in line to run an interim technocratic Government after Berlusconi goes.

Italy’s borrowing costs shot up alarmingly Wednesday on fears that Berlusconi would linger in office, but the markets calmed yesterday when it appeared that Italian lawmakers would approve the latest Government austerity plans in the next few days and Berlusconi would resign after that.

Monti, 68, now heads Milan’s Bocconi University, but he made his reputation as the European Union competition commissioner who blocked General Electric’s takeover of Honeywell.

Europe has already bailed out Greece, Portugal and Ireland — but together they make up only about six per cent of the eurozone’s economic output, in contrast to Italy’s 17 per cent. Italy, the eurozone’s third-largest economy, is considered too big for Europe to bail out. It has a mountain of debt — euro1.9 trillion (US$2.6 trillion) — and a substantial portion of that needs to be refinanced in the next few years.

Many European stock markets rose on the twin Greek and Italian developments, while in the US the Dow Jones industrial average was up 1.5 per cent, a day after shedding 3.2 per cent. The euro was also in demand, trading 0.5 per cent higher at US$1.3609.

In Athens, shares closed 0.64 per cent down after rising 1.6 per cent on news of Papademos’ appointment.

Greek analyst Platon Monokroussos said hopes have been raised that the new prime minister will help the country regain its lost international credibility.

“Of course the new Government will fight an uphill battle to implement a very austere adjustment programme in Greece, very significant structural reforms, and this creates a lot of challenges,” said Monokroussos, who is head of financial market research at Eurobank. “But overall, today’s outcome is positive.”