Angela Merkel dashes Greek hopes of rescue bid

Angela Merkel, the German chancellor, mounted stiff resistance tonight to any swift bailout of Greece, as a rift opened up between European capitals over how best to tackle the risks posed to the euro.

Despite a show of Franco-German unity on the crisis and the first statement from EU leaders pledging to safeguard the currency's stability, hopes on the markets of a

German-led rescue plan to shore up Greece's critical public finances were dashed by Merkel, who repeatedly emphasised that Athens would need to put its own house in order and brushed aside all questions of financial support.

"Germany is stepping totally on the brakes on financial assistance," said a senior EU diplomat. "On legal grounds, on constitutional grounds and on principle." Another senior diplomat said of the Germans: "They're not waving their chequebooks."

An EU summit of 27 government chiefs in Brussels was the first opportunity to tackle the Greek crisis and also send a strong message to the financial markets, which have been betting against the euro for the last week.

Following talks between the Greek prime minister, George Papandreou, Merkel, President Nicolas Sarkozy of France, and Jose Manuel Barroso and Herman Van Rompuy, the European commission and European council presidents, the leaders issued a statement aimed at restoring calm and voicing political support for Papandreou's programme of swingeing budget cuts and structural reforms.

The statement said the 16 EU countries who use the single currency, including Greece, "will take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole." That was seen as a strong political signal to speculators that the big euro economies such as Germany and France would act persuasively to restore confidence in the currency.

But there were no promises of funds for Greece and the statement emphasised that "the Greek government has not requested any financial support".

The European currency and the eurozone's stock markets gave a lukewarm reception to the outcome of the summit. The euro lost 1% against the dollar to $1.360, while the Dow Jones Stoxx 50 Index lost 0.7%. The major French, German, Spanish and Italian indexes fell by between 0.5% and 1.6%.

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(guardian uk)