Greece debt: Merkel pledges support from Germany

Angela Merkel has attached conditions to German support

German Chancellor Angela Merkel has pledged German support to a European financial aid package for Greece, provided "certain conditions" are met.

Speaking to reporters, the chancellor said that Germany would play its part in order to ensure the future stability of the euro.

But she said Greece would have to be ready to accept "tough measures" over several years in return.

Germany has faced criticism over its lukewarm response to Greece's problems.

Strikes and demonstrations in Athens don't help. But angry Greeks don't spook the markets half as much as angry Germans Stephanie Flanders BBC's economics editor Read Stephanie's thoughts in full

Fears that Europe's largest economic power would refuse to back a rescue package for the struggling Greek economy has helped to hit investor confidence in recent weeks.
"Germany will help if the appropriate conditions are met," Mrs Merkel said. "Germany feels an enormous obligation towards the stability of the euro.

Critical deadline'

"If Greece is ready to accept tough measures, not just in one year but over several years, then we have a good chance to secure the stability of the euro for us all."

She did not elaborate on what tough measures might entail, but rejected the idea of expelling Greece from the eurozone.

Greece's finance minister George Papaconstantinou warned on Monday of the urgent need to meet a "critical" debt deadline.

What went wrong in Greece?

Greece's economic reforms that led to it abandoning the drachma as its currency in favour of the euro in 2002 made it easier for the country to borrow money.

Greece went on a debt-funded spending spree, including high-profile projects such as the 2004 Athens Olympics, which went well over budget.

It was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.

Greece's economic problems meant lenders started charging higher interest rates to lend it money and widespread tax evasion also hit the government's coffers.

There have been demonstrations against the government's austerity measures to deal with its 300bn euro (£267bn) debt, such as cuts to public sector pay.

Now the government is having to access a 110bn euro (£95bn; $146.2bn) bail-out package from the European Union and International Monetary Fund.

Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.

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The country needs to raise 9bn euros (£7.7bn) by May 19 and cannot go to the markets because of the "prohibitive" interest rates, he said.

"There is a critical date for Greece. It is the date when bonds of around 9bn euros will reach maturity," he told parliament.

"Until then our borrowing needs are covered but the market conditions... are completely prohibitive for a new debt sale on the markets," he said.

The Greek government's cost of borrowing on the money markets has reached record levels in recent days amid investor concern over whether a 40bn euro (£34bn) bail-out package for Greece will be agreed.

Eurozone countries, together with the International Monetary Fund, have yet to agree details of the package, which has met with domestic resistance in Germany and other eurozone countries.

'Fear'

Investors are also concerned that the Greek government's austerity measures - designed to cut domestic spending and reduce its ballooning budget deficit - will prove too unpopular with the Greek public.

"The Greek government is going to have to deliver a multi-year consolidation programme," said Ken Wattret, chief European economist at BNP Paribas.

"There is a fear in the financial markets that the government will be either unwilling or unable to deliver these austerity measures."