Greece, Europe struggle to contain debt crisis

ATHENS, Greece — German Chancellor Angela Merkel on Tuesday sought to calm market fears that Greece is heading for a chaotic default on its debts as Europe struggles to contain a crippling financial crisis.

Her comments come a day after her deputy raised the possibility of a Greek default, and ahead of a teleconference a Greek official said she will have Wednesday with French President Nicolas Sarkozy and Greek Prime Minister George Papandreou.

“I think we will do Greece the greatest favor by not speculating much, but instead encouraging Greece to implement the commitments it has made,” Merkel said on rbb-Inforadio.

Fears of an imminent Greek default have pushed interest rates on the country’s 10-year government bonds up further Tuesday to a new record of over 24 percent, even though Merkel sounded a note of optimism regarding Greece’s chances of getting the next batch of bailout cash from the so-called troika — the European Commission, the European Central Bank and the International Monetary Fund.

Representatives from the three organizations are due back in Athens this week.

“Everything that I hear from Greece is that the Greek government has hopefully understood the signs of the time and is now doing the things that are on the daily agenda,” Merkel said. “The fact that the troika is returning means that Greece has started doing some things that need to be done.”

Merkel also warned of the perils of an “uncontrolled” Greek bankruptcy.

“I have said ‘if the euro fails, Europe fails’ — that that applies here and therefore everyone should very carefully weigh their words,” she said. “What we don’t need is unrest in the finance markets — the uncertainties are already big enough.”

Merkel suggested that even an orderly default could not come any time soon, noting there was not even a mechanism currently in place for a eurozone nation to default. The future permanent European Stability Mechanism — the eurozone’s planned bailout fund — will come into force in 2013.

Greece is relying on international rescue loans to remain solvent. But lagging efforts to tame a bloated budget deficit and enforce reforms are now threatening that lifeline, which is conditional on fiscal progress.

Papandreou met Tuesday with his finance chief, Evangelos Venizelos and two senior bankers, ahead of the teleconference with Merkel and Sarkozy and a forthcoming eurogroup meeting on Sept. 16, a Greek official said, speaking on customary condition of anonymity.

Greece is trying to convince international creditors that it deserves to get the next, sixth tranche of money due from a bailout fund and Venizelos is to speak Tuesday evening with German finance minister Wolfgang Schaeuble. A Greek official said the two will resume a 25-minute telephone conversation initiated by Venizelos the previous day.

Government spokesman Elias Mossialos said late Monday that Greece will get the bailout money.

“We will get the sixth tranche,” Mossialos told Alpha TV. “It will be disbursed in October,” he said, adding that Greece currently has enough cash to last it until the end of October.

The latest bout of jitters in the markets have been partly stoked by comments from Vice-Chancellor Philipp Roesler Monday that there should be “no bans on thinking” in how to resolve the euro crisis. By raising the specter of an “orderly insolvency,” Roesler’s comments reinforced concerns that Greece will end up defaulting.

Despite over 20 months of austerity and two international bailouts each worth about (euro) 110 billion ($150 billion) — although the second faces considerable implementation delays — Greece’s finances remain in a parlous state.

Over the past few days, Venizelos has issued a series of pledges to accelerate delayed reforms meant to cut the cost and size of the public sector, and raised the prospect of firing up to 20,000 public servants — which would break a major taboo in a country where state employees have guaranteed jobs for life.

In a last desperate bid to plug the revenue hole, the government on Sunday imposed a new, two-year blanket tax on property.

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David Rising in Berlin and Elena Becatoros in Athens contributed to this story.