GERMAN CHANCELLOR Angela Merkel has defended her handling of the Greek crisis, saying that by holding out for fresh austerity measures from Athens she has ensured the €110 billion EU/IMF bailout will be the last.

Following cabinet approval yesterday, a law will be fast-tracked through the German parliament this week freeing €8.4 billion this year and a maximum of €14 billion over the subsequent two years for Greece.

The sum will take the form of loans through Germany’s state-owned KfW bank, at an interest rate of 5 per cent, covered by a state guarantee.

“We’ve always said that if the stability of the euro as a whole was at stake, we would work quickly and decisively and that is what we have done,” said Dr Merkel to public television yesterday.

“It is legitimate that we have done everything we could to avoid this point, and it is in the interests of all Germans because it is their money we are acting to protect.”

The German leader has come in for criticism from several quarters for withholding her approval for loans, at considerable cost to Greece, until the International Monetary Fund extracted further spending cuts in a new austerity programme.

“Without this programme, we would never have supported this,” said Dr Merkel, calling it an important signal to other struggling euro zone members: self-help before external help.

“We were very worried about Ireland last year but they made huge savings,” she said. “The lesson is that savings targets have to be met, and I think this is a lesson that has been well learned.”

She called it “hubris” to suggest a link between her pace on a bailout, which is opposed by two-thirds of Germans, and the struggle of her Christian Democratic Union (CDU) in polls ahead of a crucial weekend regional election.

Dr Merkel reiterated her call for more effective punitive measures for countries that breach euro zone rules in future, such as removing voting rights in EU decision-making.

Referring to existing punitive measures, she said: “It makes no sense to impose a fine on a country with no money.”

Meanwhile, finance minister Wolfgang Schäuble is to receive Germany’s leading bankers and financiers in Berlin this morning to explore the possibility of a private contribution to reduce the public exposure.

Deutsche Bank chief executive Josef Ackermann is ready to provide a €500 million loan from his institution, according to the Financial Times Deutschland.

Insurers Allianz and Munich Re may offer €300 million and €200 million respectively, the newspaper added.

Mr Schäuble denied yesterday that the move was a “publicity stunt” by banks and insurers, which were owed an estimated €45 billion by Greece at the end of last year.

Opposition parties have made bank participation in a rescue package a precondition for their support in parliament.

“We want to avoid that the taxpayer is asked to pick up the tab a second time,” said Sigmar Gabriel, leader of the Social Democrats.

Dr Merkel’s government majority in both lower and upper house, the Bundestag and Bundesrat, is enough to push through the emergency legislation.

However, the German leader is anxious to bind in opposition parties to send a signal of political unity to the financial markets from Berlin and to hinder her opponents using the deal to score last-minute points ahead of the weekend election in North Rhine Westphalia.