From The Times
March 19, 2010

Merkel calls Papandreou’s bluff over aid plan from EU

David Charter, Brussels

Germany hardened its stance against a European bailout of Greece last night by effectively calling the bluff of its Prime Minister after he suggested that Athens could seek emergency cash funds from the International Monetary Fund.

With German public opinion strongly against a rescue package from the eurozone, Angela Merkel, the Chancellor, seemed to have rejected George Papandreou’s latest plea for a bailout plan to be drawn up, even if it was never needed.

Mr Papandreou made a flying visit to Brussels yesterday to urge the eurozone “family” of 16 countries to support his drastic austerity programme by announcing how they could save Athens from a default on its sovereign debt.

In a thinly veiled threat, he said that Greece was already carrying out measures that satisfied the IMF, signalling that he could ask for the Washington organisation’s cash if no aid plan was agreed at next week’s EU summit.

Mr Papandreou seemed to be playing a game of brinkmanship to try to secure a potential eurozone rescue at preferential rates, or at least to use the threat of the IMF to force a bailout plan on to the table to calm markets and reduce Greece’s borrowing costs.

However, the ultimatum appeared to have failed last night. “We see no need for immediate action. Greece has not asked for aid,” a German source said in Brussels. “In case the situation of Greece does get worse, Germany would be open for an IMF solution.”

As tension rose before next week’s summit in Brussels, an MP in Mrs Merkel’s CDU party added that Greece was welcome to go to the IMF, even though Mr Papandreou knew that this would be seen by fellow leaders and the markets as a sign of the failure of the euro project, which could cause further contagion among weak EU economies.

“There is an opportunity to make a decision next week at the summit,” Mr Papandreou told the European Parliament. “This is an opportunity we should not miss. We are a family of values, with solidarity with each other.”

He emphasised that he was not seeking a bailout but clear details of a plan, which he likened to a “loaded gun”, to try to put an end to the market speculation that has seen the price of Greek debt rise steadily this year.