Merkel sees IMF joining Greek bailout as debt relief floated

[BERLIN] German Chancellor Angela Merkel said she's confident the International Monetary Fund will join Greece's third bailout and signaled willingness to consider debt relief to help make it happen.

Merkel's first public comments since euro-area finance ministers backed the 86 billion-euro (S$135.35 billion) aid package were partly aimed at her party's lawmakers, who want the chancellor to ensure an IMF contribution to the latest Greek rescue. Germany's lower house votes on the bailout on Wednesday.

IMF Managing Director Christine Lagarde made it clear she will back the fund's participation starting in October if conditions including eased terms on previous Greek aid loans are met, Ms Merkel said in an interview on ZDF television Sunday.

"And I have no doubt that what Mrs Lagarde said will then become reality," she said. "We said in July that maybe - no, not maybe - there is still leeway on the extension of maturities, on interest rates." German lawmakers have set their approval vote for the day before an Aug 20 deadline for Greece to pay 3.2 billion euros to the European Central Bank. While Ms Merkel's coalition has consistently backed bailouts during Europe's debt crisis, dissent has grown with each vote and 60 lawmakers in her 311- member caucus voted against even holding talks on further aid to Greece last month.

The chancellor rearranged her schedule to try to limit the party revolt, moving up a trip to the Expo 2015 fair in Milan by 24 hours to Monday so she can address her caucus Tuesday on the night before the vote.

A resolution to the standoff with Greece may help spur Europe's stuttering recovery. Euro-area economic growth unexpectedly slowed last quarter as the region's three largest economies fell short of estimates.

Even so, the euro's weakness is bolstering German growth and Greek 10-year bond yields dropped below 10 per cent last week after climbing to 19.58 per cent in July, the highest since October 2012. The euro fell 0.3 per cent to US$1.1071 at 9:18 am in Berlin.

Two senior lawmakers in Merkel's Christian Democratic Union endorsed the deal Saturday, saying it reflects Germany's need to reach a compromise with its 18 euro-area partners.

"This is what's currently achievable in Europe," lawmakers Ralph Brinkhaus and Eckhardt Rehberg said in a joint statement. Greece "has cooperated" and accepted conditions important to Germany, making the aid accord "justifiable," they said.

Approval by Germany's parliament is needed to unlock Greece's three-year bailout, which includes immediate funds to cover looming bills such as the ECB payment.

Under the deal by euro-area finance ministers, 26 billion euros will be available in the first disbursement for Greece, including 10 billion euros for a fund to recapitalise banks. Extending the repayment periods of Greek aid loans will be conditional on Greece's government meeting the conditions of the bailout.

Ms Merkel praised Prime Minister Alexis Tsipras's government for changing tack after a "real confrontation" with Greece's creditors in a bid to escape austerity measures tied to bailouts. Yet there's no guarantee that Greece's government will keep up its recent "intensity of work," she told ZDF.

One reason to move forward on the bailout is Europe's "extreme" refugee crisis, which is turning into a bigger challenge "than Greece or the euro crisis," Ms Merkel said.

BLOOMBERG