Merkel cool on Greek aid as voters and FDP resist

BERLIN Fri Feb 12, 2010 9:47am EST

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BERLIN (Reuters) - Chancellor Angela Merkel, under pressure from German voters and her coalition partners to limit support for debt-ridden Greece, is adopting a cautious approach that could put the brakes on any EU plans for financial help.

The timing of frantic talks about helping Greece could hardly be worse for Merkel, who faces her own budget problems. Fresh data on Friday showed that a recovery in Europe's biggest economy stalled in the fourth quarter.

And an Emnid poll published on Thursday this week indicated 71 percent of Germans were opposed to financial aid for Greece.

Against the tough economic background and with the free-market Free Democrats (FDP) as coalition partner, the conservative Merkel is well aware she would have a tough job selling a bailout.

"The time has passed when Germany was Europe's paymaster general because now it hasn't got any money of its own," said Gerd Langguth, a political scientist at the University of Bonn and biographer of Merkel.

"Merkel will not be too generous. She is being cautious and operating in accordance with the public mood."

European leaders sought to help Greece with words of support at a summit on Thursday but offered no specific steps, sending Greek debt yields higher and the euro down against the dollar.

MARKETS NERVOUS

Greece has struggled to convince investors that it will get its budget under control and markets are jittery about the prospect of a default.

This all chimes with Germans' own long-held fears that letting Mediterranean countries join the euro would undermine the currency stability that they won and cherished over decades.

Britain's Guardian newspaper reported Merkel had resisted a quick bailout of Greece at Thursday's summit.

"Germany is stepping totally on the brakes on financial assistance," the newspaper quoted a senior EU official as saying. "On legal grounds and on principle."

Quoting unidentified officials, the Guardian said that, despite a show of Franco-German unity on the crisis, Merkel had stifled a specific rescue plan for Greece.

German officials have stressed that EU rules make both EU-wide and bilateral aid to Greece problematic.

And Merkel has emphasized that Greece must sort out its own problems. Her infrequent public statements on the issue have been double-edged.

"Greece is part of the European Union. Greece will not be left on its own, but there are rules, and these rules must be adhered to," Merkel said in Brussels before Thursday's summit.

FDP RESISTANCE

Even if Merkel is convinced of the need to offer support to Greece for the sake of the single currency, subsidizing another country is unacceptable to her ruling partner, the FDP, whose pro-free market members have been openly skeptical about aid.

FDP foreign minister Guido Westerwelle reiterated on Friday that Greece would not get any blank cheques, and told Athens to implement budget reform swiftly.

Other senior members of his party are even more outspoken.

"If you help now, you take pressure off the Greek government to implement reforms," FDP finance expert Frank Schaeffler said.

"It cannot be that a country in the euro zone cheats and there is no possibility of throwing them out," he told Reuters, adding that Greece had only succeeded in entering the common currency with falsified statistics.

The perception that Athens cooked its books offends many Germans who made sacrifices to rein in their own budget deficit before the crisis hit with steps such as raising sales tax.

"In Germany people are aware that Greece never committed to a course of budget discipline and that the statistics were touched up by the Greek government," said Langguth.

"There is also a fear that other countries may follow -- Portugal and Spain. The perception is that the EU, let alone Germany, can't afford it."

Germany expects its public deficit to swell to 5.5 percent of gross domestic product (GDP) this year, well beyond the EU limit of 3 percent and Merkel has vowed to tackle that as soon as the recovery allows. Last year, the economy shrank by a record 5 percent, its deepest recession since World War Two.

(Additional reporting by Matthias Sobolewski; Editing by Kevin Liffey)

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Comments (2)
Bludde wrote:
The smartest move Merkel and Weber/Buba can make is to BUY the 200 tons of gold from the IMF.. buttressing the credibility of Germany and the Euro and avoid the precedent of any direct aid to any of the PIIGS

Feb 12, 2010 10:34am EST  --  Report as abuse
ARJTurgot wrote:
Big party, big hangover. It does look like the U.S. might not have been the only country living beyond its means…

Feb 12, 2010 1:18pm EST  --  Report as abuse
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