BERLIN – European leaders sent out conflicting signals at the weekend over aid to Greece, with Germany's Angela Merkel urging Athens to solve its debt problems alone and Italy's Silvio Berlusconi strongly backing EU support.
The 16-nation euro zone is divided over whether and how best to provide financial help to Greece, whose struggles to cope with soaring debt and deficits have plunged the currency bloc into the deepest crisis of its 11-year existence.
Chancellor Merkel, who faces a key state election in May, is keenly aware that the German electorate overwhelmingly opposes a bailout for Greece and has hardened her line against the EU making a concrete pledge of financial support.
Merkel's stance pits her against Brussels and major European partners, who favor strong action to end a speculative assault on Greek assets that has made it twice as expensive for Greece to borrow as for Germany.
On German radio Merkel denied Greece had any "acute financial needs" and rejected suggestions by European Commission President Jose Manuel Barroso that EU leaders agree a standby aid package for Athens at a summit this week.
"I don't see that Greece needs money at the moment and the Greek government has confirmed that. That's why I'd urge us not to stir up turbulence in the markets by raising false expectations for Thursday's council meeting," Merkel said, referring to the March 25-26 summit.
"Aid will not be on the agenda at the meeting on Thursday because Greece says itself it doesn't need help right now."
Barroso told Monday's edition of the Handelsblatt newspaper that the European Union urgently needed to resolve the Greece problem "regardless of the political agenda in member states."
"Securing the stability of the currency union is in Germany's interest," Barroso told the German daily. "I'm sure Germany will make a constructive contribution to resolving the current crisis."
EURO FALLS, SPREADS WIDEN
Shortly after Barroso's comments were released, the German government took the unusual step of issuing a statement saying Merkel spoke to Greek Prime Minister George Papandreou on Sunday and he told her Greece does not need financial help.
"The Greek prime minister reaffirmed that Greece does not need any financial assistance," the statement said.
Italy has long been considered one of the weak links in the euro zone but Prime Minister Silvio Berlusconi told Reuters at an election rally in Bologna on Sunday that he was "absolutely in favor" of the EU providing aid to Greece.
He later hardened his stance, saying the European Union had "no reason to exist" if its members were not ready to help a crisis-hit euro zone country.
Italy's debt-to-GDP ratio is projected to hit 117 percent this year, compared to 120 percent forecast for Greece, though Rome has kept a lid on its budget deficit and has weathered the financial crisis better than others in Europe.
Uncertainty over European support for Greece pushed the euro as low as $1.3502 on Friday, its weakest level in more than two weeks. The spread between Greek and benchmark German bond yields ended the week at 325 basis points, the highest level in nearly three weeks.
Some euro zone members believe the bloc itself should help Greece sort out its problems but Germany and others are not ruling out a role for the International Monetary Fund (IMF).
Berlin fears direct aid could set a precedent for other euro zone members and be challenged in Germany's Constitutional Court, because EU rules expressly forbid a bailout of a single currency member by its euro zone partners.
Greece has not formally asked euro zone members for funds, keen to see if its austerity plans restore confidence in its finances. But Papandreou warned on Friday that Greece was "one step from being unable to borrow."
DITHERING AND BICKERING
Unicredit economist Marco Annunziata said in a research note that with debt redemptions looming in April and May, Greece would likely require aid pledges soon.
"There is no shame in calling in the IMF, indeed it is the most efficient solution. The shame is having failed to ensure fiscal discipline and then spent months dithering and bickering on how to react -- this will likely prove to be a further blow to the euro."
Greece's Deputy Finance Minister Philippos Sachinidis told Mega TV that Athens wanted the euro zone to "send the proper message to markets so that the next time Greece goes out to borrow in international markets it will face interest rates that price the Hellenic Republic in a better way."
He said a standby support mechanism could be a pool of funds set aside by other euro zone countries which can borrow at much lower rates. Athens could turn to this pool if markets fail to lower the rates at which they lend Greece money.
"What is lacking right now is not the mechanism to help Greece but the political will," Sachinidis said.
Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, told a Greek newspaper on Sunday that joint EU and IMF support would be the best solution to the country's debt woes.
"I consider the best way is a combination of support, funding and guarantees," he told Kathimerini. "In this combination I see the IMF as well."