The head of the European Commission challenged German Chancellor Angela Merkel to rise above domestic politics and agree on a financial safety net for debt-stricken Greece to help preserve European monetary union. Greece's deputy prime minister meanwhile accused Berlin on Monday of allowing its banks to take part in a "deplorable game" of speculating on Greek bonds while German exporters profited from a weaker euro due to Athens' budget problems.
-- Poll shows massive German opposition to any bailout
Jose Manuel Barroso told a German newspaper that European Union leaders must decide at a summit on Thursday and Friday on a support mechanism for Greece or risk harm to their common currency, noting the euro's stability was in Germany's interest. "We need a decision at this summit on how to deal with Greece, otherwise the heightened uncertainty will go on and on," Barroso told business daily Handelsblatt.
"We can't carry on as we are, as this would threaten the stability of the eurozone and encourage speculation," he said. A spokesman for Merkel insisted that the issue of aid for Greece was not on the summit agenda, but Barroso's spokeswoman said the EU executive chief was in regular contact with the chancellor, adding: "He is not disappointed. He is hopeful ... that an agreement can be reached."
Underscoring Barroso's warning, the euro slipped to a three-week low against the dollar on Monday as investors fretted over the uncertain prospect of support for Greece. The risk premium on Greek debt jumped to its highest level since March 1 and the cost of insuring Greek debt against default also rose.
The Socialist bruiser fuelled tension with Berlin last month by saying Germany had failed to compensate Greece properly for Nazi occupation in World War Two. Greece's central bank reported that the 2009 budget deficit hit 12.9 percent of national output, even higher than the new Socialist government announced when it doubled its predecessor's estimate to 12.7 percent in October.
The Bank of Greece said the economy had fallen into "a vicious circle", with gross domestic product seen shrinking by 2 percent this year after a similar slump last year, and the only way out was "the drastic reduction of the deficit and debt". Merkel faces fierce opposition to any bailout ahead of a key regional election in May in which her centre-right coalition's upper house majority is at stake.
She repeated on Sunday that Greece, which has imposed draconian austerity measures to cut its budget gap, did not need money for now, something Prime Minister George Papandreou confirmed to her in a telephone call. "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 told Deutschlandfunk radio.
An FT/Harris poll in Monday's Financial Times showed 62 percent of Germans oppose their government helping Greece with its budget deficit, while only 20 percent are in favour. One-third of Germans think Greece should be asked to leave the euro, while 40 percent believe Germany would be better off outside the currency bloc.
A plurality of Spaniards supports EU aid to Greece while opinion is evenly divided in France and Italy, whose governments have strongly advocated helping Athens, partly because they fear a market rout of Greece might ultimately turn against them. Any financial support for Athens would likely be challenged in the German Constitutional Court, which set strict conditions barring transfers to other euro states when it approved European monetary union in the 1990s.
Given the daunting political and legal hurdles, Merkel aides have suggested Greece may have to go to the International Monetary Fund rather than the eurozone if it needs help. Other eurozone states backed his call for an agreement this week. The foreign ministers of Italy, France and Austria called for a compromise before or at the summit.