Merkel softens attitude toward Greece as debt default ruled out
Published 16/10/2012 | 05:00
CHANCELLOR Angela Merkel has ruled out letting Greece default on its debt, in the latest sign Berlin is softening its stance towards Athens ahead of an eagerly awaited report on its reform progress from the troika of international lenders.
The German leader signalled she would be taking a more conciliatory approach towards Greece by visiting the country for the first time since the eurozone crisis erupted there.
And over the weekend, comments by several conservative allies of the chancellor provided further evidence that the government has embarked on a delicate policy pirouette.
Finance Minister Wolfgang Schaeuble, one of Greece's harshest critics, told a meeting of business leaders in Singapore that the country would not go bankrupt -- an acknowledgment that Athens will get the €31.5bn aid tranche it needs next month to avert a default.
Ms Merkel told a news conference she was in total agreement with Mr Schaeuble, and explicitly ruled out any steps -- including a Greek eurozone exit -- that might unleash "uncontrollable developments" in the single currency bloc.
The change in tone, which helped push down Greek bond yields to their lowest levels in over a year, reflects a reassessment by Ms Merkel of the costs and benefits of her tough public stance towards the eurozone's most vulnerable member.
The hard line served two main purposes: it ensured that reform pressure on Greek Prime Minister Antonis Samaras remained high, and it convinced sceptical conservative allies of Ms Merkel in parliament to support her.
Now the calculation has changed. With a US election less than a month away and a German vote due one year from now, reducing the risk of turmoil has become the top priority, even if it complicates Ms Merkel's domestic dance.
She now looks set to grant Mr Samaras the two extra years he is seeking to hit deficit reduction targets. This will be a tough sell at home, in part because it would tear a new hole in Greece's funding plan.
But it is seen as workable as long as Ms Merkel can avoid going to parliament to seek approval for additional loans.
"There is a recognition, not just in Germany, that we need to avoid going back to national parliaments for Greece," a senior German official told Reuters.
Ideas under consideration range from front-loading the loans in the second bailout, to using leftover EU budget funds to plug a Greek hole that sources say could total as much as €30bn.
Governments and the European Central Bank have ruled out accepting losses on their existing loans to Greece -- a solution favoured by the IMF to fill the Greek gap.