BERLIN - German Chancellor Angela Merkel sought Tuesday to calm market fears that Greece is heading for a chaotic default as Europe struggles to contain a crippling financial crisis.
Merkel rejected the notion that a Greek bankruptcy — a possibility raised a day earlier by her deputy that spooked markets — would provide a quick solution to the eurozone debt crisis.
She argued that Europe instead needs to stick to its efforts to cut budget deficits and improve its competitiveness, and that resolving the crisis would be "a very long, step-by-step process."
Her comments came ahead of a teleconference Wednesday with French President Nicolas Sarkozy and Greek Prime Minister George Papandreou.
Fears of an imminent Greek default pushed interest rates on the country's 10-year government bonds up Tuesday to a new record of over 24 per cent, although Merkel sounded optimistic regarding Greece's chances of getting the next batch of bailout cash from the so-called troika — the European Commission, the European Central Bank and the International Monetary Fund.
Representatives from the three organizations are due back in Athens soon.
"Everything that I hear from Greece is that the Greek government has hopefully understood the signs of the time and is now doing the things that are on the daily agenda," Merkel told rbb-Inforadio. "The fact that the troika is returning means that Greece has started doing some things that need to be done."
Merkel also sought to defuse suggestions by Vice Chancellor Philipp Roesler and others that a default by Greece is a possibility.
Roesler raised on Monday the spectre of an "orderly insolvency" in the future, a notion the Dutch finance minister indicated was being considered.
Jan Kees de Jager told Dutch financial news show "RTL Z" on Tuesday that his ministry was "prepared or preparing for all conceivable scenarios and even the almost inconceivable scenarios."
Asked if that included a Greek default, he said "It includes all likely and unlikely scenarios, but I can't tell you specifically which."
Merkel dismissed the idea that the debt crisis "could evaporate with one buzzword — be it eurobonds or insolvency or other words."
"I am deeply convinced that won't happen," she told reporters after meeting Finnish Prime Minister Jyrki Katainen. The chancellor didn't mention Roesler but pointed to the potential dangers of untested action.
"We must always keep in view that we do everything we do in a controlled way, that we know the consequences, because otherwise a situation could very quickly arise in the eurozone ... that none of us wants and that could have very, very difficult consequences for us all," Merkel said.
She suggested that even an orderly default couldn't come any time soon, noting there wasn't even a mechanism in place for a eurozone nation to default. The future European Stability Mechanism — the eurozone's permanent bailout fund — will start up in 2013.
German opposition politicians have suggested Roesler's main aim was to score political points for his Free Democratic Party, the junior partner in Merkel's centre-right coalition, which is struggling with dismal poll ratings.
Roesler defended his position Tuesday.
"We want Greece to stay in the eurozone," he said. "For that, we need to restore (its) economic potential; and from my point of view, there can be no bans on thinking in this restoration."
Greece is relying on rescue loans to remain solvent. But lagging efforts to tame a bloated budget deficit and enforce reforms are threatening that lifeline, which is conditional on fiscal progress.
Athens is trying to convince international creditors that it deserves to get the next, sixth tranche of money due from a bailout fund. Government spokesman Elias Mossialos said late Monday that Greece will get the bailout money.
Despite over 20 months of austerity and two international bailouts each worth about €110 billion ($150 billion), Greece's finances remain in a parlous state.
Over the past few days, Finance Minister Evangelos Venizelos has issued a series of pledges to accelerate delayed reforms meant to cut the cost and size of the public sector, and raised the prospect of firing up to 20,000 public servants — which would break a major taboo in a country where state employees have guaranteed jobs for life.
In a last desperate bid to plug the revenue hole, the government on Sunday imposed a new, two-year blanket tax on property.
The planned second Greek bailout has faced delays in implementation — not least because of Finland's demand for collateral for its contribution, which annoyed other Europeans.
Merkel said she was "very optimistic" of resolving that.
"I think we want to, and will, find a way that is in principle open to all partners and still fulfills Finland's requirements," she said.
Paphitis reported from Athens. David Rising in Berlin, Elena Becatoros in Athens and Mike Corder in The Hague also contributed to this story.