* Iron Lady's firm leadership and conviction politics remembered
* Euro zone rim's problems could be too tough even for Thatcher
* Inequality, social strain are price of free-market legacy
By Alan Wheatley, Global Economics Correspondent
LISBON, April 9 (Reuters) - Even in the depths of recession, southern Europe is showing a sneaking regard for the single-minded way that Margaret Thatcher rammed through some of the very policies that are now putting the region on the rack.
The free-market principles of the former British prime minister, who died on Monday aged 87, are too radical for those on the euro zone periphery - and elsewhere - who instinctively look to the state for a helping hand.
But commentators and economists said Europe badly needed the sort of leadership that Thatcher showed in the early 1980s in reviving a country that, like the euro zone now, was alarmingly low on confidence.
"She took over a bankrupt country hit by strikes, hyperinflation, very strong unions, paralysis of public services, high taxes on labour and little wealth creation," Portuguese academic Bernardo Pires de Lima wrote in the daily Diario de Noticias.
His appreciation was headlined "Thanks, Thatcher".
Thatcher's remedy for the economic ills she inherited was to cut public spending in the teeth of a recession, tame powerful unions and roll back the state through a bold programme of liberalisation and privatisation - pretty much what is being prescribed for the euro zone periphery today.
George Zombanakis, an economist with the Greek central bank, said pursuing a similar agenda, even if less aggressively than Thatcher did, would solve a lot of southern Europe's problems.
"We're in exactly the same position as Britain was back in those days, lagging behind in terms of competitiveness," he said. "We have to understand that if we do nothing, China, India and others will become better off at the expense of Europe."
Zombanakis said southern Europe might be less amenable to Thatcherism than Britain was. But Thatcher, too, faced fierce opposition initially to her radical policies and yet prevailed.
"The lesson is the lack of leadership in Europe," he said. "It's the determination that makes the difference."
Yet the malaise on the rim of the euro zone is so deep that some wonder whether even someone with Thatcher's steel would be able to stop the rot.
"She would be facing a complete depression, a state of despair," said Riccardo Barbieri, an economist with Mizuho in London. "There's a point where even a gutsy politician with very clear ideas would find it almost impossible to do what she did."
Barbieri said a smaller, more efficient state would be a priority for Thatcher. Spending would be cut. But, since the euro zone economy is in a currency straitjacket, she would not share the fixation with deficit reduction, through tax increases if necessary, pushed by Germany and the European Commission.
"I wouldn't be surprised if today's Margaret Thatcher argued that, along with supply side and public sector reforms, you would also need more leeway on the budget front," Barbieri said. "Let the automatic stabilisers work. So she would not be fussed with a deficit that is higher than 3 percent of GDP."
That economists are even wondering how Thatcher would tackle today's problems shows her lasting impact.
"Having someone who says you cannot count only on the government to solve your problems was a bit revolutionary for us. You always had that in the United States, but in Europe in the 1970s no one was thinking like that," said Filipe Garcia with Informacao de Mercados Financeiros, a consultancy in Porto.
Thatcher's legacy, of course, is not unblemished.
Garcia, for instance, argued that the current generation is paying for the fallout of the extensive financial deregulation that Thatcher championed, epitomised by London's "Big Bang" financial reforms of 1985.
Former European Commission President Romano Prodi agreed, saying Thatcher's policies "created the conditions for the explosion of the most dramatic financial (and now economic) crisis of the postwar period".
Prodi, a former centre-left prime minister Of Italy, said Thatcher's low-tax doctrine had also widened the gap between rich and poor. "Let us tell it how it is: Thatcher reduced the state to nothing," Prodi wrote in business daily Il Sole 24 Ore.
On the other side of Italy's political spectrum, Silvio Berlusconi, another ex-prime minister, said Thatcher's lessons were more valid today than ever.
"When I entered politics in 1994 I always remembered her lesson: with liberal ideas, it is possible to save a country that has been the victim of the left's state control and unions," he said.
In an editorial, the left-leaning Spanish newspaper El Pais acknowledged both points of view. Thatcher had jolted a paralysed country back to life, albeit at a heavy social cost. "But no British leader has undone her main reforms," it said.