Germany tells...

Germany tells Greece not to stray if it wants cash

By Gareth Jones and Stephen Brown

BERLIN |  2012 5:46am EDT

(Reuters) - Germany told Greece on Friday that staying in the euro zone was its own choice and that it must not stray from austerity if it expects to get international cash.

It also laid out its support for a European 'growth pact' in an attempt to deflect criticism that its insistence on austerity has exacerbated Athens' debt woes.

In a speech to parliament, Foreign Minister Guido Westerwelle said Germany wanted to help Greece stay in the euro zone but made clear the EU-IMF loans needed to stave off bankruptcy hinged on continued spending cuts and tax hikes.

With a nod to France's Socialist President-elect Francois Hollande and other European critics of Berlin's drive for budget discipline, Westerwelle said Germany too wanted more growth but not if it meant more spending.

"The future of Greece in the euro zone lies in the hands of Greece," Westerwelle told the Bundestag lower chamber.

"We want to help and we will help Greece, but Greece has to be ready to accept help. If Greece strays from the agreed reform path, then the payment of further aid tranches won't be possible. Solidarity is not a one way street," he said.

The leaders of Greece's two mainstream pro-bailout parties were making a last-ditch bid on Friday to forge a new government after last Sunday's election deprived them of a parliamentary majority and boosted radical anti-bailout parties.

If they fail, Greece, now in its fifth year of recession, faces new elections next month in which anti-austerity leftists seem likely to repeat their strong gains, possibly paving the way for a Greek debt default and leave the euro.

In a sign some European countries are coming to terms with a possible Greek exit, German Finance Minister Wolfgang Schaeuble said in an interview published on Friday that the euro zone was much more resilient now to nasty shocks following the creation of bailout funds that are supporting Greece, Portugal and Ireland.

"The contagion dangers for other countries of the euro zone have shrunk, the euro zone has become more resilient," Schaeuble told the online edition of the Rheinische Post newspaper.

"The idea that we are not able to react to something unforeseeable at short notice is wrong. Europe does not go under so quickly," he said.

GREEK EURO EXIT?

Echoing those comments, the head of Germany's main private banking association told German radio the euro zone would survive if Greece had to leave.

"I believe the euro zone could cope with it (a Greek exit). The immediate consequences would be limited," said Michael Kemmer, general manager of the Association of German Banks.

Schaeuble criticized political forces in Greece who suggested to their voters that there was a realistic alternative to the austerity program.

"(It is) dangerous to lead citizens into believing that there is another, simpler way whereby Greece could recover by avoiding hardship," Schaeuble said in his interview.

Some Greek politicians, including Alexis Tsipris, leader of the Radical Left Coalition that polled second in last Sunday's election, have said Greece can reject the austerity program but still stay in the euro.

In his Bundestag speech, Westerwelle said the European growth pact advocated by France's Hollande and others should not involve more expenditure than at present but "better use of resources" in the EU budget in coming years.

He cited waste and abuses such as "European-funded stays at spas in romantic hotels".

Westerwelle said the EU should invest 80 billion euros of unused structural funds in projects to spur growth and competitiveness, and boost the European Investment Bank to give small and medium-sized firms better access to credit.

The former leader of the business-friendly Free Democrats (FDP), who are coalition allies of Chancellor Angela Merkel, also linked growth in Europe to the need for freer internal and external markets.

Hollande will hold talks with Merkel in Berlin on Tuesday, hours after his inauguration, on the euro zone debt crisis and measures to revive growth in Europe, much of which - with the important exception of Germany itself - is mired in recession.

It will be the first face-to-face meeting between the two leaders. Merkel shunned Hollande during the election campaign and publicly backed the incumbent, fellow conservative Nicolas Sarkozy.