AFTER weeks of backing a European rescue deal for financially troubled Greece, Germany now says that help should come from the International Monetary Fund rather than Greece's neighbours.
Turning to the IMF would represent a new and potentially humiliating twist in Greece's financial drama, which was set off by doubts about Athens's ability to borrow €53 billion ($A78 billion) this year to finance a yawning budget deficit and refinance waves of debt coming due.
Worries that investors would shun Greek bonds and force a default shook markets worldwide last month but eased recently after Germany and other members of the European Union indicated they would come to Greece's aid if necessary. The Greek government, in turn, unveiled a long-awaited package of budget cuts.
But prospects for both European aid and domestic spending cuts receded on Thursday with Berlin's about-face. Greece's prime minister also warned that the promised budget cuts might not be enacted unless the country could borrow at lower interest rates.
''We will make it, provided that our country can borrow on reasonable terms,'' Prime Minister George Papandreou said. ''Based on those conditions, our country is not seeking and will not seek financial aid, either from our European partners or from the IMF, which would be our last resort.''
It is still likely, however, that some form of aid will be needed to help Greece raise the €53 billion euros - from which €20 billion is needed in April and May alone.
Greece would prefer that any financial help come from Europe, to avoid the embarrassment of turning to the IMF. But with voters in Germany and elsewhere strongly opposed to a bailout for what they see as a profligate government, European leaders want to see proof the Greek government is serious about cutting spending after years of living beyond its means.
Citing legal hurdles, a government official in Berlin said that Germany believed that any external financial support to Athens would best be provided by the IMF.
''In the case that the Greeks get into really serious problems, we would support an IMF solution,'' said the official, who was not authorised to speak publicly on the matter.
Besides unsettling the markets, Greece's troubles have undermined the euro, the common currency that it and 15 other European nations share.
Amid the uncertainty, the euro slipped against the US dollar and was quoted at $US1.3621 ($A1.48) in afternoon trading in New York on Thursday, down from $1.37 early in the session. European stocks also wilted, with the Athens Stock Exchange General Index ending 3.4 per cent lower.
The IMF typically comes to the rescue of emerging-market economies rather than developed countries.
The earlier offer of support for Greece did calm markets and take the spotlight off Greece, but European leaders have been vague about how any aid package would actually be structured.
The Greek government, however, has been pushing for clarity on what its neighbours will do in the hope of bringing down its borrowing costs, which have risen as Greece's debt troubles have become more acute.
Germany's new stance could worsen divisions in Europe, since President Nicolas Sarkozy of France and Jean-Claude Trichet, the president of the European Central Bank, both favour a European rescue effort rather than an IMF-orchestrated one.
Already, the varying announcements from Berlin have left some politicians in Europe cold. ''I find what has happened, or rather what has not happened over the past few days and weeks, incomprehensible,'' Guy Verhofstadt, former Belgian prime minister and the current president of the Liberal Democratic bloc in the European Parliament, said. ''It is incomprehensible because it is precisely a European response that is the quickest and least costly solution.''
In Washington, Caroline Atkinson, the IMF's director of external relations, said on Thursday that the fund had not yet been approached by Athens.
''We expect the eurozone countries to want to, and to plan to resolve this question by themselves,'' Ms Atkinson said. She added that the IMF was ready to respond to a request from Greece for a loan.
NEW YORK TIMES
