The president of the European Commission challenged German Chancellor Angela Merkel to rise above domestic politics and agree on a financial safety net for debt-stricken Greece to help preserve European monetary union.
Jose Manuel Barroso told a German newspaper that European Union leaders must decide at a summit on Thursday and Friday on a support mechanism for Greece or risk harm to their common currency, noting the euro's stability was in Germany's interest.
"We need a decision at this summit on how to deal with Greece, otherwise the heightened uncertainty will go on and on," Mr Barroso told business daily Handelsblatt.
"We can't carry on as we are, as this would threaten the stability of the euro zone and encourage speculation."
Underscoring his warning, the euro slipped to a three-week low against the dollar today as investors fretted over the uncertain prospect of support for Greece.
The risk premium on Greek debt jumped to its highest level since March 1st and the cost of insuring Greek debt against default also rose.
The 16-nation euro zone remains divided over whether and how to provide financial help to Athens, whose struggles to cope with soaring debt and deficits have plunged the currency region into the deepest crisis of its 11-year existence.
Mr Barroso's comments appeared to put him on a collision course with Ms Merkel, who faces massive opposition at home to any bailout ahead of a key regional election in May in which her centre-right coalition's upper house majority is at stake.
Ms Merkel repeated yesterday that Greece, which has imposed draconian austerity measures to cut its budget deficit, did not need money for now, something Greek prime minister George Papandreou confirmed in a telephone call with the German leader.
"That's why I'd urge us not to stir up turbulence in the markets by raising false expectations for Thursday's council meeting," she told Deutschlandfunk radio.
"Aid will not be on the agenda at the meeting on Thursday because Greece says itself it doesn't need help right now."
Given the daunting political and legal hurdles, Merkel aides have suggested Greece may have to go to the International Monetary Fund rather than the euro zone if it needs help.
But Mr Barroso appealed to Berlin's interests as the biggest economy in the single currency area, which is its number one export market.
"Securing the stability of the currency union is in Germany's interest," he told Handelsblatt. "I'm sure Germany will make a constructive contribution to resolving the current crisis."
Other euro zone states backed his call for an agreement this week. Italy's foreign minister called for a compromise before the summit and his Austrian counterpart said the summit should decide on a support plan for Greece.
An EU diplomat said a joint euro zone/IMF support mechanism might be one way of making it more politically acceptable.
The new head of Greece's PDMA debt agency last week revised down the amount that Athens need to borrow by the end of May to €16 billion. Petros Christodoulou said €23 billion of Greek debt falls due from April 19th to May 23rd, but the government has a positive cash balance of around €7 billion.
The risk premium on Greek debt rose to more than 340 basis points over benchmark German bonds today, meaning Athens would have to pay more than 6.5 per cent to borrow on capital markets - more than twice what Germany pays.
Reuters