Merkel urges calm, caution over Greece

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German Chancellor Angela Merkel Tuesday sought to ease fears over a possible Greek bankruptcy, saying the 17-country eurozone had to stick together and that an "uncontrolled insolvency" must be avoided.

"The top priority is to avoid an uncontrolled insolvency, because that would not just affect Greece, and the danger that it hits everyone -- or at least several countries -- is very big," Merkel told German radio station RBB.

She stressed that the eurozone had to remain intact, warning that if Greece were to leave the group, others would swiftly follow.

"I have made my position very clear that everything must be done to keep the eurozone together politically. Because we would soon have a domino effect," said the chancellor.

She recalled that there is currently no formal procedure in the eurozone for the "orderly default" of a member state but noted the EU's permanent crisis mechanism (ESM) that is due to come into force in 2013 included one.

Merkel also had encouraging words for debt-wracked Greece, which is trying to persuade an international team known as the "troika" that it is getting its public finances back on track -- a prerequisite for more aid.

"Everything I hear from Greece is that the Greek government has hopefully seen the writing on the wall and is now doing some of the things that are required," she said.

She said she was in "direct contact with the Greek authorities" and added: "We are making it very clear through these channels how serious the situation is."

French Prime Minister Francois Fillon had similarly soothing words for Athens, saying late Monday there "was no doubt" over France's commitment to "protect the eurozone."

"This solidarity should not and will not be broken," he told a conference in Paris.

And in a bid to calm markets, which went into free fall Monday after comments from German policymakers that an orderly insolvency for Greece or even a eurozone exit was possible, Merkel urged officials to choose their words cautiously.

"Everyone should weigh their words very carefully. What we do not need is volatility on the financial markets. The uncertainties are already big enough," said Merkel.

Merkel's comments were seen as a rebuke to Economy Minister Philipp Roesler who said in an opinion article on Monday that Europe could no longer rule out an "orderly default" for Greece.

Roesler is also Merkel's vice chancellor and head of the pro-business Free Democrats (FDP), the junior partners in Merkel's prickly centre-right coalition.

After falling to a 10-year low against the yen on Monday, partly on the back of Roesler's comments, the euro stabilised somewhat but markets remained risk averse amid continued worries over Greece.

The chancellor also said she was confident she would secure the necessary parliamentary majority in a crunch vote later this month on expanding the EU's rescue fund, despite the threat of a backbench rebellion in her coalition.

The vote, expected on September 29, will be watched closely in the financial markets, which are nervously looking for any sign that Germany, Europe's top economy and paymaster, is wavering in its commitment to the euro.

Despite Merkel's insistence that the eurozone will stay together, however, the influential Bild daily reported that fears were growing in the coalition that Greece would eventually have to leave the currency zone.

"A Greek euro exit is seen as possible as soon as next spring," wrote Bild, citing sources within the ruling coalition.

© 2011 AFP

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