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Merkel Tries To Reassure Markets On Chance Of Greek Default

A day after her finance minister said the possibility of an "orderly default" by Greece should be on the table, German Chancellor Angela Merkel sought to reassure markets by saying that Germany will continue to finance Greece.

As The Wall Street Journal explains it, what Merkel is saying is that Europe will not allow Greece to be forced to declare bankruptcy or leave the eurozone. The paper adds:

Ms. Merkel's comments helped to calm jittery markets on Tuesday, and contributed to a sharp rebound in French banking stocks, which have been hammered recently by fears of a chaotic Greek bankruptcy that could inflict painful losses on banks elsewhere in Europe.

The chancellor stressed that Germany remains committed to financing Greece through the euro zone's bailout funds until Greece can repair its own finances through austerity measures. She gave a thinly veiled rebuke to German politicians, including her own economics minister and Deputy Chancellor Philipp Rösler, who have suggested in recent days that Greece should be allowed to go bust.

According to Voice of America, Merkel said the issue is that if Greece misses a payment for its bailout package, the eurozone could face contagion. The Financial Times reports that Merkel said Europe would continue doing what it could to keep Greece from defaulting until at least 2013, "when the eurozone's permanent rescue fund, the European Stability Mechanism, is due to come into operation."

The FT adds:

The German chancellor's remarks came as US President Barack Obama warned eurozone leaders in an interview with Spanish journalists that they needed to show markets they were taking responsibility for the debt crisis.

Ms Merkel and Nicolas Sarkozy, the French president, are holding a conference call on Wednesday with George Papandreou, the Greek prime minister.

The purpose would be to assure Mr Papandreou of their support for his "almost superhuman efforts" in reforming the Greek economy and curbing its borrowing, according to one senior official. At the same time they would urge him to deliver measurable progress on Greece's promises in exchange for the next tranche of its rescue package from the European Union and International Monetary Fund, the official added.

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