ATHENS, Greece - Senior banker Lucas Papademos was appointed prime minister Thursday of an interim Greek unity government that seeks to cement a European debt deal and stave off national bankruptcy.

Chosen after four tortuous days of power-sharing talks, Papademos immediately called for unity and promised to seek cross-party co-operation to keep Greece firmly in the 17-nation eurozone.

The 64-year-old former vice-president of the European Central Bank will lead a government backed by both the governing Socialists and the opposition conservatives that will operate until early elections, tentatively set for February. He replaces outgoing Prime Minister George Papandreou midway through a four-year term.

The new Greek cabinet, whose members were not immediately named, will be sworn in Friday afternoon.

The announcement came as Italy wrestled with its own governing crisis, with economist Mario Monti in line to run another interim technocratic government. Italy's borrowing costs shot up Wednesday on fears that Premier Silvio Berlusconi would linger in office, prompting the country's president to promise that Berlusconi would be out likely by Saturday.

Europe has already bailed out Greece, Portugal and Ireland -- but together they make up only about 6 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.

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

In Athens, hopes rose that Greece will avoid an imminent bankruptcy that could push Europe into a new recession and world financial markets into turmoil.

"I am not a politician but I have dedicated most of my professional life to exercising financial policy both in Greece and in Europe," Papademos said after the Greek president gave him the mandate to form a Cabinet. "The Greek economy continues to face huge problems despite the great efforts than have been made for fiscal reform."

He insisted Greece must defend its euro membership.

"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, adding that just being in the eurozone will help Greece through its troubles.

Shares on the Athens Stock Exchange were up 1.6 per cent at 779.6 on the news of the power deal power deal. That came despite more bad news for Greece's recession-hit economy: unemployment surged to 18.4 per cent in August, up from 12.2 for that month in 2010.

European officials greeted the Greek news with relief.

"The agreement to form a government of national unity opens a new chapter for Greece," said a joint statement by European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy.

They stressed "it is important for Greece's new government to send a strong cross-party message of reassurance to its European partners that it is committed to doing what it takes to set its debt on a steady downward path."

Many Greeks are deeply angry after 20 months of government austerity measures, including repeated salary and pension cuts and tax hikes to get the country's first, C110 billion ($152 billion) international bailout. Despite the reforms, the Socialist government missed its financial targets as Greece fell into a deep recession. Furious labour unions held repeated strikes, with many demonstrations degenerating into riots.

The European Union, meanwhile warned that the 17-nation eurozone could slip back into "a deep and prolonged" recession next year amid the debt crisis. The European Commission predicted the eurozone will grow a paltry 0.5 per cent in 2012 -- way less than its earlier forecast of 1.8 per cent growth. EU unemployment will be stuck at 9.5 per cent for the foreseeable future.

Papademos' appointment comes after nearly two weeks of political turmoil sparked by Papandreou's surprise announcement that he wanted to put his country's new C130 billion ($177 billion) European debt deal to a referendum. Under it, private bondholders will forgive 50 per cent of Greece's debt so the country can get its massive debts under control and start to pay its own way.

The deal has analysts fearing those holding Italian bonds could one day also be required to forgive some of Italy's massive C1.9 trillion ($2.6 trillion) debt.

Papandreou's sudden decision on a popular vote led to mayhem on international markets and angered both European leaders and his own Socialist lawmakers. European officials said the call endangered Greece's position in the eurozone, and are withholding the next, critical C8 billion ($11 billion) bailout payment until Athens approves the second debt deal.

Bowing to pressure, Papandreou agreed to resign and reached a historic power-sharing deal with conservative opposition leader Antonis Samaras on Sunday to form a transitional government.

Papademos, who is not a member of any party, has been operating lately as an adviser to the prime minister.

He taught at Columbia University from 1975 to 1984 and worked at the Federal Reserve Bank of Boston before returning to Greece to become chief economist at the Bank of Greece from 1985-1993.

He was then appointed deputy governor of the Bank of Greece, rising to the helm a year later after helping fend off a speculative attack on the drachma.

As governor from 1994 to 2002, Papademos presided over an era of increasing independence from the government that was crucial in helping Greece secure membership in the eurozone. He then spent eight years at the European Central Bank.