Merkel says Greece must seek IMF rescue

BRUSSELS: German Chancellor Angela Merkel on Thursday demanded ahead of a EU summit that Greece seek rescue finance from the International Monetary Fund (IMF).

The euro currency slid to a 10 month low against the dollar in the hours before European leaders started the summit dominated by frenzied efforts to save Greece from defaulting on its 300 billion euro (407 billion dollar) debt.

Pressure has grown since Portugal was hit Wednesday by the same credit-rating downgrade that triggered the Greece crisis.

German Chancellor Angela Merkel said she will push at the two-day summit for IMF aid to Greece and for bilateral loans from eurozone members only as a "last resort."

Spanish Prime Minister Jose Luis Rodriguez Zapatero, the bloc's current chair, again stressed that a "European solution" was his preferred goal, echoing the European Central Bank and others who say going to the IMF shows weakness.

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Merkel has been compared in her country to former British prime minister Margaret Thatcher for her dogged refusal to yield, despite rising Greek anger over what it perceives as a lack of European solidarity.

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Athens accuses German banks of profiteering from inflated interest rates on Greek government bonds, and German industry -- the world's second-biggest export economy -- of cashing in on Greece's woes by selling goods more cheaply abroad.

French Finance Minister Christine Lagarde has also taken aim at Germany over competitive disparities within Europe, alluding to the German export boost that is not shared by euro peers.

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"This isn't the Europe which we built over the decades," said former Belgian prime minister Guy Verhofstadt of a post-recessionary financial hangover that is stretching political ties to breaking point.

Diplomats have been working furiously for days to address conditions imposed by Berlin for any deal, and a last-minute meeting of eurozone leaders could yet precede the formal summit talks.

However, an Irish diplomat warned that "if that (meeting) doesn't happen, it will go down badly on markets" who would see it as a sign that Germany, awaiting key regional elections in May, is increasingly ready to go its own way on big policy matters.

The IMF has never been involved in planning a financial rescue for a eurozone member state although it has helped EU countries such as Hungary, in joint efforts with Brussels and other institutions.

Italian Finance Minister Giulio Tremonti wants the IMF to be used as an "intermediate" solution, "as a bank and for its know-how but under political management" by Brussels.

But a French government source summed up a wide range of conflicting opinions.

"There are some countries that want no IMF at all; some that would accept technical IMF assistance; some that are ready for a certain amount of IMF financing and others that want the Fund to be the only financial provider."

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On top of its huge debt, Athens has also had to slash a huge public deficit more than four times the permissible EU limit, triggering strikes and violent protests.

Greece wants clear-cut EU backing so as to help restore investor confidence and lower the rates it must pay to raise money on financial markets. Tens of billions of euros are required to repay maturing debt over the next couple of months.

It currently pays above six percent, more than double what Germany pays.

Germany wants to see automatic sanctions triggered whenever spending in a eurozone member becomes too wayward but the scope of such penalties remains under dispute.

In extreme circumstances, Merkel has said that she wants the eurozone to be able to expel members who fail to balance the books.

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On a more practical level, they could lose voting rights at European meetings and face fines, according to German Finance Minister Wolfgang Schaeuble.