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Merkel vows to keep euro intact as she dives into Greek standoff

Thursday, March 19, 2015 - 20:07
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German Chancellor Angela Merkel vowed to keep the euro intact before heading to a European Union summit where she'll dive into the standoff over Greece's bailout and cash crunch with Prime Minister Alexis Tsipras.

[BERLIN] German Chancellor Angela Merkel vowed to keep the euro intact before heading to a European Union summit where she'll dive into the standoff over Greece's bailout and cash crunch with Prime Minister Alexis Tsipras.

"If the euro fails, Europe fails," Ms Merkel told German lawmakers in Berlin on Thursday. "The eyes of the world are looking at how we deal with problems and crises in individual countries of the eurozone. The euro is more than a currency."

Ms Merkel, who said in her speech that a deal won't happen in the coming days, is ready to go a long way to find an eventual compromise, said a German official with knowledge of her thinking, who asked not to be identified discussing internal strategy. Nonetheless, she plans to tell Tsipras that she expects Greece to play by the rules, the person said.

Ms Merkel, whose backing is essential because Germany is the biggest contributor to Greece's 240 billion-euro (S$351 billion) bailout, is stepping into the center of the debate again as the crisis deepens. The country could run out of money already this month as debt payments and monthly salaries and pensions come due. The European Central Bank is also reluctant to continue aiding Greek banks, agreeing on Wednesday to raise emergency funding limits for the country's lenders by less than half of what was requested, people familiar with the matter said.

Mr Tsipras, who Wednesday vowed to "reclaim the dignity of the nation," is pinning his hopes of reaching a political deal with Ms Merkel and other European leaders on the sidelines of the summit meeting beginning on Thursday in Brussels.

Talks with the technical teams in Athens representing the country's troika of creditors have been put on hold while the summit takes place, two people familiar with the matter said. Greek government spokesman Gabriel Sakellaridis couldn't immediately be reached for comment.

Mr Tsipras' tactics enjoy broad support at home. While down from 72 per cent in February, the government's negotiating strategy is still supported by 57 per cent of Greeks, according to a University of Macedonia poll conducted this week for TV station Skai. Governing party Syriza would receive 40 per cent of the vote if elections were held now, according to a separate poll for TV station Alpha. Syriza received 36 per cent backing in January's election.

Greek stocks dropped ahead of the meeting, with the benchmark Athens Stock Exchange losing 1.4 per cent at 1:31 pm local time. Yields on three-year bonds rose 75 basis points, the highest level since last July, when the notes were first issued. Yields on the benchmark 10-year bond gained 24 basis points to 11.5 per cent, the highest since July 2013.

Mr Tsipras will likely be disappointed if he expects a quick solution with Ms Merkel during meetings this week in Brussels and next Monday in Berlin. The chancellor sees the talks as more of a chance to get to know him, and not to directly negotiate the details of Greece's fate, the German official said.

Her room for leeway on Greece is, in any case, limited by resistance from within her own parliamentary group, according to the official.

"Of course it's completely clear that nobody can expect a solution for Greece's problems tonight in Brussels or Monday night," Ms Merkel said in her speech on Thursday. Progress is possible "only on the basis of what was agreed" by Greece in previous talks with euro-area finance ministers, she said.

Ms Merkel held a phone call on Greece Wednesday with President Barack Obama, reviewing "efforts to reach a pragmatic agreement" to "return the country to growth within the euro area," the White House said in a statement.

As Mr Tsipras challenges his creditors to blink first, his government's money is running out, raising the prospect of a cash crunch as early as this month. The country faces more than 2 billion euros in debt payments Friday, and government salaries and pensions must be paid at the end of March.

The ECB raised the maximum amount of emergency liquidity available to Greek lenders by 400 million euros on Wednesday, less than the about 900 million euros the nation's central bank had requested, people familiar with the decision said.

Greek banks were cut off from regular ECB funding operations in February, forcing them onto Emergency Liquidity Assistance from the Greek central bank. The Frankfurt-based ECB has the power to curb ELA and is reviewing it weekly amid concern that banks will use it to finance the Greek government.

Ms Merkel appealed on Thursday for leaders to come together to find a solution.

"If we look at how far we've come on the road of European unification, there's no reason to lose heart in the face of today's tasks," she said.

BLOOMBERG