Germany: Greek bailout only as last resort

[March 25, 2010]  BRUSSELS (AP) -- German Chancellor Angela Merkel is insisting that any European bailout for Greece be only a last resort and must involve the International Monetary Fund, rebuffing calls from EU officials and other euro nations to come up with a definite rescue plan at a Thursday summit of EU leaders.

Market worries over the lack of a safety net for a member of Europe's currency union drove the euro down to $1.3325, its lowest level since May. A euro bought $1.51 in late November.

Merkel, leader of the EU's largest member state, voiced strong opposition to an easy bailout program for Greece at the German parliament, saying she could only allow aid in an "exceptional emergency" where Greece was unable to borrow from bond markets.

Greece has been able to borrow by selling government bonds, but only at high interest rates that Greek Prime Minister George Papandreou says are crippling his efforts to plug a huge budget deficit. He is calling on European leaders to agree an aid plan at a two-day summit starting Thursday.

Merkel was not sympathetic, saying any plan should only kick in as a last resort when the stability of the euro is threatened and "if a euro state no longer has access to international financial markets," meaning when Greece could in practical terms no longer sell its bonds.

"The German government will push at the summit today and tomorrow that in an emergency, such help could come as a combination of IMF and bilateral aid within the euro zone," she said.

She claimed France would join Germany and "actively support a decision involving the IMF" and individual loans from eurozone nations.

France has been reluctant to call on the IMF -- and the European Central Bank has been fiercely opposed, seeing it as interference in Europe's currency union.

The Washington, DC-based international lending agency has already bailed out three European Union members -- Hungary, Romania and Latvia -- but none use the euro. Calling in the IMF would underline the eurozone's inability to deal with the crisis on its own.

Europe's socialist party -- which counts Spanish and Greek leaders as members -- isn't keen either. The party's leader Poul Nyrup Rasmussen told reporters on Thursday that "if the only answer from Europe is to ask the IMF to help us then we are really, really, really poor."

However, the failure of the 16 euro nations to prevent Greece and other countries running up huge debts -- or bail them out when they get into trouble -- shows up the flaws in the way the currency is managed.

Merkel said eurozone nations need to learn the right lessons from the financial crisis and toughen sanctions against countries that run budget deficits above the EU limit of 3 percent of gross domestic product. She said it would be "disastrous" to abandon these rules.

"There must be an end to cheaters," she said in a swipe at Greece which faked budget figures.

[Associated Press; By AOIFE WHITE]

Associated Press writers Kirsten Grieshaber in Berlin, Raf Casert in Brussels and Carlo Piovano in London contributed to this story.

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