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Greece's Prime Minister George Papandreou

DIMITRI MESSINIS

Germany's position that debt-swamped Greece should not be bailed out seems to be hardening.

A poll published in Sunday's Bild am Sonntag newspaper showed that 53 per cent of Germans said the European Union should, if necessary, expel Greece from the euro zone, the 16 EU countries that share the euro currency.

More than two thirds of Germans polled did not want Germany or any other EU country providing credit to Greece if it can't raise enough debt to fund its deficit.

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At 12.7 per cent of gross domestic product (GDP) - more than four times the EU's agreed limit under its Stability and Growth Pact - Greece's deficit is the EU's highest.

Members of Chancellor Angela Merkel's Christian Democratic Union government warned that a bailout for one country could lead to bailouts of other economic weaklings, such as Portugal and Spain, where the unemployment rate is 20 per cent.

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"If we start now, where do we stop?" Michael Fuchs, a member of economy committee of the German parliament's lower house, told the Welt am Sonntag newspaper. "I can't explain to people on unemployment benefit that they won't get a cent more but Greeks can draw a pension at 63."

Ms. Merkel raised Germany's retirement age form 65 to 67 in an effort to trim the country's deficit. Greece's maximum retirement age for men is 65, and 60 for women. The Socialist government of Greek Prime Minister George Papandreou plans to raise retirement ages, freeze public sector wages and boost fuel taxes to bring the deficit down, but has provided few details on the strategy. The effort will take several years.

The Financial Times reported that Ms. Merkel wants Greece to raise its value-added tax, the equivalent of Canada's GST, by one percentage point.

France is more open to the idea of tossing Greece a financial lifeline, though only on the condition that Greece does everything in its power to whip its sorry finances into shape.

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The conflict between France and Germany on how, or even whether, to help Greece was reflected in the EU's vaguely worded, and entirely detail free, statement last week. The euro zone would take "determined and co-ordinated action, if needed, to safeguard stability in the euro area."

The lack of a funding commitment triggered another selloff of the euro, which hit $1.35 (U.S.) on Friday, its lowest level since May. Earlier in the week, rumours of a bailout pushed Greek bond yields down. The euro and the stock markets went up.

Greece may get a better measure this week of the EU's resolve to support EU countries that may not be able to sell bonds to fund enormous deficits. The topic will rank high on the agenda at today's meeting in Brussels of finance ministers from the 16 euro zone countries. All 27 EU finance ministers are to meet tomorrow.

Germany's no-bailout position is almost certainly being influenced by its own deteriorating finances. Its budget deficit is expected to grow to 5.5 per cent of GDP this year. The country's economy failed to grow in the last quarter, raising fears of a double-dip recession. The euro zone as a whole grew only 0.1 per cent in the same quarter, after growth of 0.4 per cent in the third quarter.

Some economists think Germany will back down on its hard-line position if a Greek debt default appears inevitable. That's because a default could trigger a second international banking crisis. Britain alone owns 20 per cent of Greek bonds.

"The real worry is the banking system," Charles Wyplosz, the director of the International Centre for Money and Banking Studies, said in a Feb. 9 report published on the Vox economists' website. "Some European banks hold part of the Greek debt and, if still saddled with unrecognized losses from the subprime crisis, might become bankrupt."

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Euro zone governments will bail out Greece to avoid "contagious debt defaults, along with bank failures," he said.

In an interview aired Sunday on the Australian Broadcasting Corp., Mohamed A. El-Erian, the co-chief investment officer and CEO of Pacific Investment Management, said that Greece will need help closing its deficit "because the amount of fiscal adjustment required is beyond what society can absorb. So you need external financing."

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