German leader downplays chance of default by Greece

BERLIN - German Chancellor Angela Merkel sought Tuesday to calm market fears that Greece is heading for a chaotic default as Europe struggles to contain a crippling financial crisis.

Merkel rejected the notion that a Greek bankruptcy, a possibility raised a day earlier by her deputy that spooked markets, would provide a quick solution to the eurozone debt crisis.

She argued that, instead, Europe needs to stick to its efforts to cut budget deficits and improve its competitiveness and that resolving the crisis will be "a very long, step-by-step process."

Her comments came ahead of a teleconference today with French President Nicolas Sarkozy and Greek Prime Minister George Papandreou.

Fears of an imminent Greek default pushed interest rates on the country's 10-year government bonds up Tuesday to a record of over 24 percent, although Merkel sounded optimistic regarding Greece's chances of getting the next batch of bailout cash from the so-called troika: the European Commission, the European Central Bank and the International Monetary Fund.

Representatives from the three organizations are due back in Athens soon.

"Everything that I hear from Greece is that the Greek government has hopefully understood the signs of the time and is now doing the things that are on the daily agenda," Merkel told the radio station rbb-Inforadio. "The fact that the troika is returning means that Greece has started doing some things that need to be done."

Meanwhile, President Barack Obama urged European leaders to take a more forceful approach to the continent's debt problems, which could slow an already faltering U.S. economy.

"They have taken some steps to slow the crisis but not solve the crisis," Obama told a group of Spanish-speaking journalists Tuesday. "We will continue to see weaknesses in the world economy so long as this issue does not get resolved."

Merkel also sought to defuse suggestions by Vice Chancellor Philipp Roesler and others that a default by Greece is a possibility.

On Monday, Roesler raised the specter of an "orderly insolvency," a notion the Dutch finance minister indicated was being considered.

Jan Kees de Jager told Dutch financial news show "RTL Z" on Tuesday that his ministry was "prepared or preparing for all conceivable scenarios and even the almost inconceivable scenarios."

Asked if that included a Greek default, he said, "It includes all likely and unlikely scenarios, but I can't tell you specifically which."

Merkel dismissed the idea that the debt crisis "could evaporate with one buzzword - be it 'eurobonds' or 'insolvency' or other words."

Roesler defended his position Tuesday.

"We want Greece to stay in the eurozone," he said.

"For that, we need to restore (Greece's) economic potential. And, from my point of view, there can be no bans on thinking in this restoration."

by Geir Moulson and Nicholas Paphitis Associated Press Sept. 14, 2011 12:00 AM




German leader downplays chance of default by Greece