Merkel - Softening - Says She Is Open To Stimulus For Greece

By NICHOLAS KULISH and MELISSA EDDY

BERLIN — Chancellor Angela Merkel of Germany said Wednesday that she was ready to discuss stimulus programs to get the Greek economy growing again and that she was committed to keeping Greece in the euro zone, signaling a softer approach toward the struggling country. The fierce rhetorical salvos out of Germany in the past week gave way to conciliatory gestures by Ms. Merkel, who throughout the crisis has shown a propensity for managing through brinkmanship. “I have the will, the determination to keep Greece in the euro zone,” she said in an interview on CNBC on Wednesday, in what appeared to be an attempt to relax an increasingly tense situation.

If Greek officials are looking for “stimulus to be pursued for growth in the euro zone, which we could pursue in the interest of Greece, we’re open for this,” Ms. Merkel said. “Germany is open for this.”

Europe was shaken anew this week by the chaos in Greece, where a bank run threatened to hasten the country’s exit from the euro and jeopardize the Continent’s financial stability. While the impact of a country’s leaving the euro is hard to predict, economists fear the crisis could spread to much larger countries like Spain and Italy if financial markets bid up borrowing rates to unsustainable levels.

Ms. Merkel is preparing to head to Camp David in Maryland for the Group of 8 meeting beginning on Friday, and she is likely to be pressed there by the leaders of other industrial nations, in particular by President Obama, to find a way to quell the turmoil. On Tuesday night she met for the first time with France’s newly inaugurated president, François Hollande, who campaigned on the need for more growth-promoting policies.

In recent days Ms. Merkel has signaled a growing openness to additional growth measures as long as they do not interfere with the fiscal compact to cut deficits in the euro zone in the long run. “On the one hand we have the pillar of sound fiscal policy, and the second pillar will then be the growth component,” Ms. Merkel said in the CNBC interview.

That support could come in the form of money from existing European Union funds that would be redirected for use by crisis countries, said Fabian Zuleeg, the chief economist with the European Policy Center. That approach had been championed by Mr. Hollande.

But it will take more than technical adjustments to calm the growing political opposition to austerity in Greece, Spain and other hard-hit countries in the euro zone’s periphery, Mr. Zuleeg added. “We need to put together a package that looks convincing. It can’t just be rhetoric; it has to have some real elements to it,” he said. “The real element that certainly has to be in there is money.”

Ms. Merkel’s comments punctuated a day in which all sides — from European policy makers in Brussels to political operatives in Athens, where a caretaker government was named on Wednesday — began gearing up for a second Greek election, scheduled for June 17. The political establishment in Greece and elsewhere is seeking to describe the vote as a referendum on membership in the euro, which a large majority of Greeks say they support, even as they also demand a renegotiation of the terms of their bailout agreement.

Speaking at an event in Frankfurt on Wednesday, Mario Draghi, the president of the European Central Bank, made a plea for having Greece remain in the euro zone. “I want to state that our strong preference is that Greece will continue to stay in the euro area,” Mr. Draghi said.

German officials have been boasting recently about the ability of the euro zone to handle a Greek exit. Though aimed at reining in Greece’s left-wing parties and their goal of renegotiating the bailout deal, the talk also unsettled markets and had the potential of turning into a self-fulfilling prophecy. The perils of brinkmanship in an unstable environment were on full display on Wednesday as the news emerged that Greeks had pulled nearly $900 million in savings from banks in the days after the May 6 elections, prompting fears of an uncontrollable bank run.

The tough talk about Greece’s departure from the euro has resulted in growing qualms among the Greek public that their money could be converted to a new, significantly weaker currency — such as a reintroduced drachma — shrinking the value of hard-earned nest eggs. The more likely this possibility appears, the more Greeks have an incentive to put their money in bank accounts abroad.

With the continuing instability, the rest of Europe would remain “in limbo” waiting for Greek elections, said Holger Schmieding, chief economist at Berenberg Bank in London, “which for financial markets means one thing: volatility.”

He added, “We are exactly in the situation where the rumors or the expectations could trigger a downward spiral.”

Mr. Schmieding said that Ms. Merkel and Mr. Hollande were prepared to make concessions, but had to focus the rest of their energy on preparing to control contagion and cushion the brunt of the impact in the event of a Greek departure.

The high stakes of the second trip to the polls for Greek voters were apparent on Wednesday. “The Greek people should know what they are voting about,” said Guido Westerwelle, Germany’s foreign minister, in a statement on Wednesday. “It is not about party politics, but about Greece’s future in Europe and the euro. We hope and at the same time also expect that everyone in a decision-making role in Greece is aware of their responsibilities.”

Ms. Merkel has proved time and again how adept she is at shifting with changing circumstances. “There is a realignment under way, and one thing we know about Ms. Merkel is she is able to manage this sort of transition with very high tactical skills,” said Nicolas Véron, a visiting fellow at the Peterson Institute for International Economics in Washington.

Voters in Germany’s most populous state, North Rhine-Westphalia, dealt Ms. Merkel’s party a devastating electoral loss on Sunday, which was viewed in part as a repudiation of her emphasis on austerity to the detriment of growth.

But Ms. Merkel’s ultimate goal, Mr. Véron said, is to maintain European unity. “Her primary objective is avoiding a situation where there would be a divide between France and Germany that would be impossible to manage for both nations and would make the whole euro crisis even less manageable than it was before,” he said.

Jörg Krämer, the chief economist at Commerzbank, said he believed that the European Union was actually more flexible than German politicians had claimed, and could give Greece more time to meet the promised goals to reduce its budget deficits.

“The political class in Europe still has solidarity with Greek politicians, with the exception of the radical left,” Mr. Krämer said.

Europe needs to show its support for Greece, Ms. Merkel said in a second televised interview, on CNN, “as regards growth, as regards employment, as regards development, because what the people in Greece are experiencing now is a very, very tough period.”

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