Angela Merkel defiant as IMF leads attack on Germany

BY AGENCIES

GERMAN Chancellor Angela Merkel has defied calls for a radical shift in strategy to lift Europe out of crisis but is increasingly isolated as the International Monetary Fund and key global bodies join ranks to force her hand.

Merkel said it was folly to think that a deep problem built up over many years could be solved "at one fell swoop" and dismissed talk of doubling or tripling of the EU bail-out fund as senseless chatter.

"I ask myself, how long would that remain credible? What we don't want is a situation where we promise something we can't back up, because if markets then attack hard, Europe's flank really will be exposed," she told the World Economic Forum in Davos.

She warned that Germany itself is nearing the limits of what it can bear as its public debt reaches 82pc of GDP. "We Germans have to be careful and not end up exhausting our strength, because we don't have unlimited resources either."

However, Merkel faces an unprecedented challenge from the key institutions that channel world opinion and have emerged as champions of the eurozone's debtor states.

IMF chief Christine Lagarde threw down the gauntlet on Wednesday by openly calling for EU bodies and governments to share the burden of debt relief for Greece, a proposal fiercely resisted by Berlin.

"If the level of Greek debt held by the private sector is not sufficiently renegotiated, then public sector holders of Greek debt should also participate in the efforts," she said.

However, an IMF spokesman clarified the comments last night, saying the IMF has not asked the ECB to play any specific role.

“The Fund has no view on the relative contribution of private sector involvement and official sector support in achieving this target [reducing debt to 120pc of GDP],” the spokesman said.

Lagarde's proposal was backed Angel Gurria, head of the OECD club of rich states, who said the European Central Bank should at least give up any future profits on an estimated €40bn (£33bn) of Greek debt rather than imposing escalating burdens on private creditors as Greece's economy slides into deeper crisis.