IMF bailout for Greece looms as Germany balks at help ahead of crucial leaders’ meeting

IMF looms as Germany balks at Greek aid

BRUSSELS — German reluctance over bailing out Greece has raised the chances that the debt-laden country will be forced to turn to the International Monetary Fund for assistance, possibly by the end of this week.

French and Luxembourg politicians said Monday that European Union nations are now discussing a combination of bilateral loans from individual eurozone countries who want to contribute — and IMF aid for Greece if it needs it.

Greece has around euro20 billion ($27.1 billion) of debt maturing over the next couple of months and wants to avoid paying sky-high premiums to raise money from international bond markets.

The unusually public divide between German Chancellor Angela Merkel and EU officials backed by France over how to help Greece has kept investors on edge ahead of an EU leaders’ meeting Thursday.

“A crisis that began over Greece’s borrowing costs is now metamorphosing into a more serious threat to the political and economic order in Europe as a whole,” said Stephen Lewis, chief economist at Monument Securities in London.

Eurozone governments said last week they would provide Greece with support, likely bilateral loans, if necessary. Greece says it does not need a direct cash infusion, but a blueprint for help to convince markets that it will not be allowed to default. That would lower its costs to raise money.

In the past few days, however, Germany has been dashing those hopes — and raising the possibility that the IMF would get involved.

Merkel said Monday that EU leaders should not discuss a bailout plan at the March 25-26 summit because Greece should try to solve its debt problems itself.

She said European governments should only help Greece when it is “at the brink of bankruptcy, which it luckily is not at the moment.”

If aid is needed, “the IMF is a topic we need to look at,” she told reporters in Berlin.

France and EU officials are far more proactive, saying some sort of support package has to be agreed upon, and soon. EU Commission President Jose Manuel Barroso called last week for EU leaders to speed up agreement on bilateral loans for Greece.

France’s foreign minister Bernard Kouchner said Monday that he believed a solution could be found in the next few days — and that it could be a joint loan from the IMF and eurozone nations.

“It is on the table,” he said.

Luxembourg’s prime minister Jean-Claude Juncker also said it was “quite possible” that a combined package would emerge.

France and Italy both said Monday that they wanted to see quick action on a bailout plan.

“I would hope it can be dealt with ahead of the summit,” Kouchner said. “It would be better … I think a compromise will be found,” he told reporters.

Italian foreign minister Franco Frattini also said his country was “ready to do its share” to help Greece and that he hoped for a deal before the summit so that leaders could concentrate on a longer-term strategy to help their economies grow.

Juncker, who also heads eurogroup of eurozone finance ministers, said Monday that the bloc “has to have an instrument available” to help Greece or other troubled eurozone nations.

“Greece will not be abandoned if we see it needs the eurozone’s assistance,” he told the European Parliament’s economy committee.

He said at least two eurozone nations opposed offering EU loan guarantees to Greece, which left bilateral loans from individual nations as the only real option open at the moment.

So far, the political support proffered by the eurozone and the Greek government’s massive austerity packages have done little to reduce the price investors are asking to lend Greece money.

That’s unsustainable in the long run. Although the government has said it can wait until the end of April to borrow more money, its economic situation is dire — the Bank of Greece estimates the economy will contract by 2 percent this year, more than previously expected.

Greek Prime Minister George Papandreou effectively gave eurozone countries an ultimatum on Thursday, telling them that he would consider going to the IMF if they could not come up with something more tangible at this week’s summit.

Loans from the IMF would certainly be cheaper than borrowing in the markets — on Friday, the interest rate on Greek ten-year bonds spiked to 6.42 percent, the highest level since late February and the spread between Greek and German ten-year bond yields has moved back up to around 340 basis points.

Analysts say that Greece will find it difficult to roll over its upcoming debt paying that sort of premium. They say raising the cash after a package of measures from eurozone partners would probably be possible without IMF help.

“Ahead of major bond redemptions, Greece wants to bring down its funding costs fast,” said Holger Schmieding, European economist at Bank of America Merrill Lynch.

“Greece apparently feels entitled to ask for financial support…after all, Greece has passed two harsh IMF-style austerity programs, but is currently getting only verbal support, with no financial aid from Europe or the IMF,” he added.

Earlier this month, the Greek government pushed through a package of measures to get its budget deficit down by four percentage points to 8.7 percent of national income this year, winning plaudits in the money markets as well as in the EU.

German public opinion remains resolutely against supporting Greece and Merkel is preparing to lead the government into local elections in May.

Her tough rhetoric against a Greek financial rescue deal has also put her government at loggerheads with the French, who have been more approving of a Greek bailout deal.

Unsurprisingly, with Europe in a stalemate over what to do with Greece, the euro has foundered.

It was down a further 0.3 percent on Monday at $1.3477, its lowest since the start of the month but picked up after the European Central Bank’s president Jean-Claude Trichet said it was “impossible legally” for Greece to quit the currency union.

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Pan Pylas reported from London. Associated Press writers Robert Wielaard and Raf Casert in Brussels, Geir Moulson in Berlin and Frances D’Emilio in Rome also contributed to this story.