Greek crisis: dilemma for Merkel

Berlin - Germany is widely seen as Europe's first port of call to prevent what would be a disastrous Greek default, but any bailout would be political suicide for Chancellor Angela Merkel, analysts say.

"She will enjoy the trust of German voters as long as no money will go to Greece ... I think the threshold of pain would then have been reached," said political scientist Peter Loesche.

"I don't think Angela Merkel would survive transferring money to Athens instead of to (German cities) Hanover or Leipzig," Willem Buiter, economist at Citigroup, told the Handelsblatt business daily.

A poll in the mass-circulation Bild published this week had four out of five readers opposing any bailout, and the paper has been full of angry editorials claiming how "corrupt" and "fraudulent" Greece's government is.

The cover of last week's Focus magazine showed the ancient Greek statue the Venus de Milo making an obscene hand gesture with the caption: "A cheat in the euro family."

Giving up the beloved deutschmark, a currency that accompanied West Germany's post-war "Wirtschaftswunder" ("economic miracle") and the unified country's first decade from 1990, was a wrenching experience for Germans.

Berlin only agreed on the strict condition that members of the eurozone, launched in 1999, would keep their deficits under control.

The fact therefore that Greece, which joined the euro in 2001, has demonstrably failed to do so - and even that the numbers it gave Brussels prior to joining were incomplete - has rankled in Berlin.

And quite apart from the political implications, Germany can ill afford to be sending billions of euros to Athens as it emerges from a deep recession that has left its own public finances shot to bits.

"Germany can't continue to be the paymaster of Europe, as it has been in the past," said political scientist Gerd Langguth from the University of Bonn. "It is also in a very difficult financial situation."

Merkel, who was re-elected to a second term in September, has been adamant in reassuring voters that none of Germans' hard-earned euros would be headed for Greece.

On Sunday Merkel said "there is absolutely no question of it".

Merkel told ARD public television: "We have a (European) treaty under which there is no possibility of paying to bail out states in difficulty."

And she is expected to hammer home her message to Greek Prime Minister George Papandreou when he visits Berlin on Friday that first and foremost, it is up to Athens alone to "show courage" and "fulfil its duties."

Behind the scenes, however, media have reported that Germany is nevertheless drawing up a plan B, with talk of late-night meetings and rock-solid German guarantees to help Greek bonds more palatable to investors.

Other options are thought to be joint European help, or assistance from the International Monetary Fund.

Germany, one of the key architects - and beneficiaries - of closer political and monetary union in Europe, is loath to see Greece default, fearing huge pressure on the euro and possible contagion to other countries.

German banks also have considerable exposure to Greece, holding around €43bn in Greek debt as of September 30, according to the Bank for International Settlements.

"She is caught between the Devil and the deep blue sea," Langguth said of Merkel.

- AFP