Warning sounded as IMF says its financial resources would not be enough to meet potential needs.
Germany has downplayed the prospects of boosting its funding for the EU’s bailout fund, ahead of talks between the German chancellor and the Greek prime minister over ending the region’s debt crisis.
Chancellor Angela Merkel was expected to meet George Papandreou in Berlin on Tuesday, as part of European efforts to tackle the massive deficit in Greece.
However, analysts say the talks may not yield much more than giving Papandreou an idea of where the region’s wealthiest country stands on Greece’s future.
Papandreou, speaking in Berlin on Tuesday ahead of his talks with Merkel, said Greece had been a mismanaged country and had made mistakes in the past.
But he assured investors that their money would be used to take the country forward, citing laws and reforms the country has made in a bid to explain why Greece deserved help.
“If people feel only punishment and scorn, this crisis will not become an opportunity, it will become a lost cause. And we are determined to make this a success,” he said.
Merkel, in her own remarks ahead of the planned meeting with Papandreou, said Greece needed to show the financial markets that it was “on the right path”.
Stung by criticism for failing to stem the debt crisis, European policymakers have been working on new ways to stop the fallout from Greece’s near-bankruptcy from inflicting more damage on the world economy.
Al Jazeera’s Samah el-Shahat discusses the debt crisis
Analysts say a bailout fund of about $2.7 trillion would be needed if the crisis spreads to Italy and Spain, with some media outlets reporting that the eurozone was debating an increase in the fund to that amount.
But German officials have downplayed talk of any quick and dramatic change of course in tackling the debt crisis, such as further increasing the size of the $595bn rescue fund, called the European Financial Stability Facility.
Berlin underlined its attachment to its often-criticised step-by-step approach, with Wolfgang Schaeuble, the finance minister, insisting on Monday that there was no plan to boost the fund’s war chest.
“We are giving it the tools so it can work if necessary,” he said, referring to the new powers allowing the fund to lend to countries such as Italy even before they hit cashflow crises.
“Then we will use it effectively – but we do not have the intention of boosting its volume.”
Merkel has dismissed talk of allowing a controlled default of Greece, insisting instead on the step-by-step implementation of decisions already taken – but which investors are losing faith with.
Her meeting Papandreou comes ahead of a parliamentary vote in Germany on approving plans to beef up the rescue fund.
Al Jazeera’s Tim Friend, reporting from Athens, Greece, said Merkel is the person in the eurozone with all the power due to the financial might of Germany.
“Merkel has problems of her own with her domestic audience. The Germans increasingly don’t like the thought that they are bailing out countries, particularly Greece, that they suspect haven’t looked after their own finances well enough in the past.
“There’s an element of public relations going on here – Papandreou being seen to make the effort and Angela Merkel being seen to be stern with him and keeping him on track with Greece’s austerity package.”
European markets positive
Meanwhile, stock markets in Europe opened positively, with most indices up more than two per cent.
Across the globe, Asian markets rebounded on Tuesday, with Hong Kong closing up more than four per cent, as a European deal to help the eurozone out of its crisis began to take shape.
The rally came a day after US President Barack Obama warned European leaders that their failure to tackle the Greek debt was “scaring the world”.
Obama urged eurozone leaders on Monday to act quickly to help a region where banks have not fully recovered from the 2008 financial crisis and which is now suffering from the Greek government’s debt crisis.
“They are trying to take responsible actions but those actions haven’t been quite as quick as they need to be,” Obama told a citizens’ meeting in Mountain View, California.
Greek austerity plan
In July, when it became clear that Athens needed more help, eurozone leaders agreed on a second bailout, although several aspects of that deal still need to be finalised.
The Greek government’s new measures include a new property tax to be paid through electricity bills to make it easier for the state to collect, as well as pension cuts and more tax hikes.
Politicians are to vote on Tuesday night on the property tax bill, which electricity company workers have threatened not to collect as they say the power utility should not be used as a tax collection system.
Greeks have been outraged by the new steps, as they come on top of previous austerity measures which failed to sufficiently reduce the country’s budget deficit.
Public workers continue to hold mass strikes in protest against the government’s plans to cut jobs and raise taxes.
Al Jazeera’s Nick Spicer, reporting from Berlin, said: “Greece is sticking to the plan and working with the IMF, EU and ECB and does not want to default”.
Debt inspectors from the IMF, European Commission and ECB, known collectively as the troika, are expected to return to Athens this week to resume a review suspended earlier this month amid talk of delayed implementation of reforms.
But no specific date has been set for their return, and the European Commission made clear on Monday that no decision on releasing the funds would be reached during a meeting of eurozone finance ministers in Luxembourg next Monday.