Not helping: Another rally against the latest austerity measures. Greece has seen near-daily protests against the belt-tightening designed to stem its ballooning debt. Picture: Lefteris Pitarakis Source: AP
GERMAN Chancellor Angela Merkel urged "substantial" aid from private creditors to aid Greece's debt woes.
The suggestion came as the Eurogroup warned the crisis could spread like a firestorm through other EU economies.
In the ongoing EU negotiations on a second bailout package for indebted Greece there must be agreement on "substantial" input from private banks, Merkel told a meeting of her Christian Democrat Union party in Berlin.
However such talks should not be held in public, she added, concerned that all talk of Greece's problems and the possibility of a debt default spooked investors and the ratings agencies.
The EU and the International Monetary Fund are trying to assemble a second bailout package for Greece worth almost as much as last year's 110 billion euros ($156 billion) loan deal.
However these bailouts are linked to the need for Athens to introduce strict austerity measures to rein in the burgeoning national debt, leaving the government to deal with widespread public protest.
EU ministers will meet in Luxembourg today to discuss details of the deal.
Greek Prime Minister George Papandreou announced a new government line-up, bringing in a team of political veterans to ward off economic meltdown and seek to avoid the civil unrest growing.
Merkel veered away from a collision course with the European Central Bank over Greece, soothing markets through a show of unity alongside French President Nicolas Sarkozy.
She said she now backed a new package for Athens along the lines of a deal on Romanian debt agreed in Vienna in 2009, whereby private banks agreed to buy new government bonds to replace ones that matured.
The deal would thus avoid any forced involvement by the private sector, something the market would be likely to construe as a debt default.
"We are well aware of these worries, which is why we are calling for a solution as soon as possible," Merkel, the head of Europe's top economy and the biggest contributor to the eurozone's three bailouts so far, told reporters.
"The main message is of voluntary involvement (of private investors in the rescue). This is an important message to the banks. There are concerns that we wanted to create a so-called 'credit event'. That is not what we want."
Eurogroup head Jean-Claude Juncker warned that the debt crisis hitting Greece and others could affect Italy and Belgium, warning in an interview with a German daily, "we are playing with fire".
Luxembourg Prime Minister Juncker, who heads the group of eurozone finance ministers, said that the problems which have forced Greece, Ireland and Portugal to seek emergency bailouts from the EU and the IMF could also hit, "due to their high levels of debt, Belgium and Italy, even before Spain," which has been touted as the next in line for possible help.
In the German daily Suddeutsche Zeitung, Juncker also warned against obliging private creditors to take part in a second bailout package which is being planned for Greece, warning that ratings agencies would see such a move as a debt default.
That could have catastrophic effects for the euro, he warned; "we are playing with fire."
In a separate interview in Belgian daily La Libre Belgique, Juncker said he was confident Greece could eventually turn the corner but would likely take longer to beat its problems than previously believed.
Asked whether Greece could quit the eurozone, Juncker dubbed that an "absurd" idea with "unimaginable consequences".
He also suggested that the EU could buy extra breathing space for Greece by hiking the bloc's budgetary support, in addition to financial aid already in place.
"I don't understand - but perhaps I'm too naive - this European perversity under which, when we provide major funds under our regional and cohesion policy, we continue to insist on (Greece's) co-financing obligations," he said.
European Union funds to help bring peripheral and new members up to economic scratch represent more than a third of the bloc's yearly budget, but funds used for transport, agriculture and other regional development projects are allocated on condition that recipients contribute a percentage.
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