German Chancellor Angela Merkel vowed to keep the euro intact as the strain of keeping Greece afloat opened divisions among European Central Bank policy makers.
Merkel will meet Greek Prime Minister Alexis Tsipras at a European Union summit in Brussels Thursday with work to prepare for more financial aid stalled and the ECB Governing Council fending off calls from its own banking supervisors to tighten the screws on the government in Athens.
“If the euro fails, Europe fails,” Merkel told German lawmakers in Berlin before she traveled to Brussels, reprising an expression she adopted during the height of the debt crisis from 2010 to 2012. “The eyes of the world are looking at how we deal with problems and crises in individual countries of the euro zone. The euro is more than a currency.”
Merkel, who said in her speech that a deal won’t happen in the coming days, is ready to go a long way to find an eventual compromise, said a German official with knowledge of her thinking, who asked not to be identified discussing internal strategy. Nonetheless, she plans to tell Tsipras that she expects Greece to play by the rules, the person said.
While the German leader strove for a conciliatory tone, Greece’s position within the currency union is getting increasingly uncomfortable. Bond yields jumped to their highest in almost two years after the ECB granted Greek officials only part of their request for more emergency funding.
The ECB’s supervisory arm wanted to go even further, and prohibit Greek lenders from increasing their holdings of short-term government debt, according to euro-area officials familiar with the talks. The central bank’s top decision-making body, the Governing Council, rejected that request which would have jeopardized the prospects for political progress.
Merkel, whose backing is essential because Germany is the biggest contributor to Greece’s 240 billion-euro ($255 billion) bailout, is stepping into the center of the debate again as the crisis deepens. The country could run out of money this month as debt payments and monthly salaries and pensions come due.
“I even read in the press that this meeting is considered the last chance for Greece,” EU President Donald Tusk told reporters. “It is not.”
Tusk said that a small group of leaders will hold an informal meeting with Tsipras on the sidelines of the summit because discussing Greece’s situation with all 28 leaders present “could be maybe a little bit too hot.”
The ECB raised the maximum amount of emergency liquidity available to Greek lenders by 400 million euros on Wednesday, less than the about 900 million euros the nation’s central bank had requested, people familiar with the decision said.
While Greece won an extension of its existing bailout agreement last month, the euro area has said it won’t release any more funds until its satisfied with Tsipras’s program to fix up the economy.
Talks with the technical teams in Athens representing the country’s troika of creditors have been put on hold while the summit takes place, two people familiar with the matter said. Greek government spokesman Gabriel Sakellaridis couldn’t immediately be reached for comment.
“The bottom line is that Greece simply needs to implement those decisions in order to get an extension of the four-month program,” Finnish Prime Minister Alexander Stubb told reporters in Brussels. “They have four months. No more.”
Greek stocks dropped ahead of the meeting, with the benchmark Athens Stock Exchange losing 0.9 percent at 3:56 p.m. local time. Yields on three-year bonds rose 120 basis points, the highest level since last July, when the notes were first issued. Yields on the benchmark 10-year bond gained 48 basis points to 11.75 percent, the highest since March 2013.
“Don’t expect a solution, don’t expect a breakthrough,” Merkel told reporters before the start of talks in Brussels. Decisions on Greek aid are taken by euro-area finance ministers “and it will remain that way,” she added.