The European Union's monetary affairs chief urged the bloc's leaders on Friday to agree a standby aid package for Greece next week but France and Germany struck different notes and the euro slid. EU heads of state and government will discuss the issue at a summit in Brussels next week after Greece said it could not deliver promised deficit cuts if its borrowing costs remain so high and may have to call in the International Monetary Fund.
"It is important that the EU in the course of next week comes to a more specific conclusion, specific political conclusion about the European framework for co-ordinated and conditional action, if needed and required," EU Economic and Monetary Affairs Commissioner Olli Rehn said.
Despite the EU's verbal assurances of support, investors fear it could prove impossible to construct a eurozone financial safety net for the currency area's most heavily indebted member, largely because of German reluctance. Market doubts about a rescue plan pushed the euro to a one-week low on Friday while the premium investors demand to buy 10-year Greek government bonds rather than German Bunds continued to rise.
A French government source said on Friday that France's priority was to find a European solution for the Greek debt crisis, adding that talk of a loan from the International Monetary Fund was premature. But Berlin said it did not rule out IMF aid, easing its resistance to any solution to Athens' debt woes coming from outside the European family.
"At this time, in which no decisions have been made and no decisions are in the pipeline, the government has not excluded IMF aid," government spokesman Ulrich Wilhelm told a news conference. "Each country can decide on its own whether to request IMF aid." EU diplomats say this softening reflected mostly domestic political and legal pressures against a eurozone rescue, although Finance Minister Wolfgang Schaeuble's spokesman said he was lukewarm about the idea of IMF help.
German Chancellor Angela Merkel, facing public opposition to bailing out Greece ahead of a crucial regional election in May, has taken the hardest line against any EU rescue arrangement. The bloc is divided. While the Netherlands and Italy have said the IMF should not be ruled out, leaders of France, the Eurogroup of finance ministers and the European Central Bank have said it would be a blow to economic and monetary union if a member were to go elsewhere for a bailout.
Greek Prime Minister George Papandreou appealed to unions, which have staged strikes and street protests against austerity measures, to support his efforts to escape the debt crisis. "With full honesty towards Greeks, we talked about the point we have reached - one step before being unable to borrow," Papandreou told the annual congress of the country's biggest union, GSEE.
The premium investors demand to buy 10-year Greek government bonds rather than German Bunds continued to rise on Friday, with the 10-year Greek/German government bond yield spread widening as far as 333 basis points from 318 at Thursday's settlement. Economists say such rates would compound Greece's problems in a year when it has to raise 53 billion euros ($72.4 billion), 20 billion of it in refinancing between April 20 and end May.
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