Merkel: Greece remains on knife-edge

Merkel: Greece remains on knife-edge




(CNN) -- German Chancellor Angela Merkel is expected Wednesday to give a stark warning to economic policymakers that Greece may yet face meltdown amid a crisis that has brought the European single currency to the brink of collapse.

The leader of Europe's biggest economy will deliver the opening address at the annual Davos Economic Forum in the Swiss Alps the day after the International Monetary Fund lowered its outlook for the world economy. It called for immediate action to avert a global depression -- raising the specter of the downturn of the 1930s.

The IMF now expects the world economy to grow 3.3% in 2012, compared to its previous prediction of 4% expansion this year. The pessimistic outlook was mainly driven by the intensifying debt crisis in Europe, with the 17 nations of the eurozone expected to suffer a mild recession this year, the IMF said.

"We haven't overcome the crisis yet," Merkel said in an interview published Wednesday in several European newspapers including the Guardian. "Of course, there's Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilize the situation."



EU leaders agreed in October to provide a second €130 billion rescue package for Greece and announced a deal with private sector investors to voluntarily write down the value of Greek government bonds by 50% as part of a debt exchange.

But on Tuesday a major credit agency warned that Greece will eventually default on its debts, even if the nation reaches a restructuring deal with creditors.

Negotiations with the private sector have also stalled andthere is disagreement among some policymakers over whether requiring Greece to enact more austerity as a condition of a second bailout will help or hurt the nation's fragile economy.

Merkel, who with French President Nicolas Sarkozy, has been at the heart of efforts to rescue the eurozone from the debt crisis, conceded in the newspaper interview she did have doubts about her demand for more fiscal rigor from debt-ridden governments, which have met widespread opposition. "Good politicians always have doubts, as a way of constantly reviewing whether they are on the right track," the Guardian reported her as saying.

Nevertheless she insisted the European court of justice should enforce the public spending and budget policies of eurozone nations. And in another policy that sets her at odds with many euroskeptic politicians including British Prime Minister David Cameron, Merkel raised the specter of full European political union, with more national laws ceded to Brussels.

The only good piece of news for Merkel was that German business confidence brightened for a third month in a row, suggesting that growth may already be resuming in Europe's largest economy.