German Chancellor Angela Merkel will make her first visit to Greece next week since the eurozone debt crisis erupted, in a show of support for Athens after it said it will run out of money at the end of November without fresh international aid.
Greek Prime Minister Antonis Samaras hailed the trip as a very positive development at a time when his country is locked in negotiations with eurozone and IMF creditors who are holding back some 31.5 billion euros ($41 billion) in urgently needed loans.
"The key is liquidity. That is why the next credit tranche is so important for us," Samaras told the German business daily Handelsblatt. Asked how long Greece could manage without it, he said: "Until the end of November. Then the coffers are empty."
A German government spokesman said Merkel would travel to Athens on Tuesday for her first visit since the crisis began in late 2009, when a previous government revealed that Greece had hugely understated its public deficit.
"It is a trip that of course happens to the backdrop of this very difficult situation that Greece is going through right now, the massive adjustment and reform measures that have shaped Greece for the past two years," Merkel's spokesman Steffen Seibert told a news conference.
"We see that the reform efforts have increased under the Samaras government and we want to support that."
The visit appears to signal that Europe's most powerful leader has decided it is essential to keep Greece in the single currency area despite is repeated failure to meet fiscal targets and economic reform commitments under two bailout programs.
"This is symbolically very important. It points clearly to the fact that Merkel is not going to drop Greece, even though things are not going well there," said Carsten Brzeski, senior European economist at ING bank.
Merkel has been vilified in some Greek media as dictating devastating austerity to Greece. One newspaper dressed her in a Nazi uniform on its cover. Germany's popular press meanwhile has systematically depicted the Greeks as work-shy tax cheats.
Greek government spokesman Simos Kedikoglou said in a statement: "It's the first time in five years that the German Chancellor visits Greece. This visit ... will certainly be a further, important step towards future European decisions."
But Greek labor unions called a work stoppage and a protest rally outside parliament during her visit, and a far-right anti-bailout party, the Independent Greeks, will demonstrate at the German embassy "to express in front of Chancellor Angela Merkel our opposition to Greece becoming a German protectorate."
BIGGEST RISK TO MERKEL?
Greece's crisis poses potentially the most serious risk to Merkel's re-election prospects next year, unless a way can be found to keep Athens afloat and avoid another debt restructuring before the German general election next September.
In Brussels, a senior eurozone official said no decisions would be taken on Greece at the next European Union summit on Oct. 18-19 because preparatory work on Greek reforms and the country's macroeconomic situation will not be ready by then.
A Greek official told reporters negotiations with the so-called troika of the European Commission, European Central Bank and International Monetary Fund were intensifying ahead of a eurozone finance ministers' meeting in Luxembourg next Monday.
"The government and the troika are working around the clock so that the progress is noted at Monday's Eurogroup and the Greek issue gets on the EU summit's agenda," the official said.
Talks have been hampered by serious differences among the creditors over the long-term sustainability of Greece's debt, with the IMF arguing that bondholders will have to take further write-downs, sources on both sides said. European governments and the European Central Bank are now the biggest creditors.
That would mean Germany, the biggest contributor to eurozone rescue funds, potentially having to write off billions of euros lent to Athens during the crisis.
Merkel faces strong resistance in her own centre-right coalition against giving any further aid to Greece, depicted by rebel lawmakers as a bottomless pit.
A senior official close to Merkel told Reuters last week it made no political sense to bring individual requests for aid to Spain, Greece and Cyprus piecemeal to parliament, and it would be better to bundle them together in one package.
Spain, the eurozone's fourth biggest economy, has not yet requested a eurozone assistance package but is discussing the conditions with European authorities and the ECB.
SPAIN IN FOCUS
The leaders of Spain, France and Italy were due to discuss ways of supporting Spanish public finances at a meeting in Malta later on Friday on the sidelines of a Mediterranean summit.
Eurozone sources say Spain is ready to apply for a partial bailout that would keep it in the capital markets and trigger ECB buying of its short-term bonds, but Germany has so far urged Madrid to hold off.
Spanish borrowing costs have fallen from peaks above 7 percent since ECB President Mario Draghi announced that the central bank was ready to make unlimited purchases of bonds of eurozone states that signed up to strict terms and supervision.
Madrid has to refinance some 28.5 billion euros in maturing debt later this month in a major funding hump.
Draghi made clear on Thursday the ECB was ready to act but it was now up to eurozone governments to make the next move.
Senior central bank sources told Reuters the ECB envisions buying large volumes of sovereign bonds for a period of one to two months once the program is launched, but would then suspend purchases for an assessment period.
During that time, inspectors from the EU or the troika would assess whether a country is meeting the conditions of its aid program, to ensure continued compliance.
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