World and Nation

Germany, in a reversal, says Greece should turn to IMF

After weeks of backing a European rescue for financially troubled Greece, Germany shifted course on Thursday, signaling that help should come from the International Monetary Fund rather than Greece’s neighbors.

Turning to the IMF would represent a new and potentially humiliating twist in Greece’s financial drama, which was set off by doubts about Athens’s ability to borrow 53 billion euros this year to finance a yawning budget deficit and refinance waves of debt coming due.

Worries that investors would shun Greek bonds and force a default shook markets worldwide last month but eased recently after Germany and other members of the European Union signaled they would come to Greece’s aid if necessary. The Greek government, in turn, unveiled a long-awaited package of budget cuts.

But prospects for both European aid and domestic spending cuts seemed to fade Thursday with Berlin’s about-face, as well as a warning from Greece’s prime minister that the promised budget cuts might not be enacted unless the country could borrow at lower interest rates.

“We will make it, provided that our country can borrow on reasonable terms,” Prime Minister George A. Papandreou said in a Cabinet meeting that was broadcast in Greece. “Based on those conditions, our country is not seeking and will not seek financial aid, either from our European partners or from the IMF, which would be our last resort.”

Despite Papandreou’s brave talk, it is likely that some form of aid will be needed to help Greece raise the 53 billion euros, which includes 20 billion euros that is needed in April and May alone. And for Greece, as well as the European Union, the maneuvers Thursday amount to fiscal brinksmanship.

Greece would prefer that any financial help come from Europe, to avoid the embarrassment of turning to the IMF But with voters in Germany and elsewhere strongly opposed to a bailout for what they see as a profligate government, European leaders want to see proof the Greek government is serious about cutting spending after years of living beyond its means.

Citing legal hurdles, a government official in Berlin said on Thursday that Germany believed that any external financial support to Athens would best be provided by the IMF.

“In the case that the Greeks get into really serious problems, we would support an IMF solution,” said the official, who was not authorized to speak publicly on the matter.