EU leaders back Merkel's tough stand on Greece

Angela Merkel. Photo / AP

Greek PM Tsipras calls new referendum on German-led austerity.

Her critics call her the villain of the Greek drama, a taskmaster forcing a bankrupt nation to its knees. But even as the Greeks reach their breaking point, the leaders of Europe are lining up behind German Chancellor Angela Merkel.

In exchange for a German-led rescue, Merkel has demanded years of harsh budget cuts and painful restructuring in Greece. But after a five-year economic depression in Greece and demands for fresh cuts to extend its bailout, the country's new leftist Prime Minister Alexis Tsipras has gone on the offensive. He called a surprise referendum for Sunday, asking citizens to reject German-backed austerity - with a 'no' vote possibly crashing Greece out of the euro and slamming global markets.

So firm is Merkel's line on austerity that yesterday, she appeared to turn down a last-minute counter-proposal by Tsipras for a whole new bailout, arguing it was no use discussing a fresh deal until after the results of the vote. Her tough response came as European finance ministers also rejected a Hail Mary request by Greece to extend its existing bailout, and as Athens missed a 1.6 billion ($2.6 billion) payment to the International Monetary Fund - officially becoming the first developed country in the history of the institution to default on a rescue loan.

Greece was set to continue talking today with officials from the 18 other nations that use the euro, in what seemed like an uphill battle to secure a new lifeline. Tsipras has been scrambling to win the support of Europe's other leaders. Together, he argues, they can ignite a revolution against Merkel's fiscal tyranny, which is also crimping spending from Lisbon to Rome, Paris to Dublin.

But Europe needs the deep pockets of its economic powerhouse, Germany, in case a broader financial crisis erupts from a Greek exit from the euro. And if there's a revolt brewing so far, it's against Tsipras, while Merkel is enjoying a surprising level of support.

Italy's Prime Minister Matteo Renzi, for instance, has been a long-standing critic of Merkel's tight fiscal line for Europe. But yesterday he defended her, saying any effort to blame Berlin for a pending Greek tragedy is "a convenient alibi that doesn't correspond to reality".

"Mrs Merkel really tried to find a solution," he told reporters in Rome, saying a proposal blessed by Merkel and offered to the Greeks last week had amounted to a real compromise.

A day earlier, Renzi dismissed Tsipras' claim that Greeks could say no to austerity in the vote and still remain in the elite club of 19 countries that share the euro currency.

French President Francois Hollande, who is, like Tsipras, a leftist, has nevertheless backed Merkel's conservative stance. While calling for dialogue, he echoed the German consensus that Athens cannot dump austerity and keep the euro.

Some of the harshest criticism of Tsipras is not coming from the Germans, but from nations such as Spain and Portugal that endured painful cuts and have begun to emerge from their financial black holes. Equally frustrated with Greece are poorer nations within the euro currency union that wonder why Athens should be allowed to give its citizens more generous pensions and sidestep higher taxes when they cannot.

The leaders of Europe are stepping up for Merkel even as others are pointing a finger of blame - albeit not always directly. Nobel Prize-winning American economist Joseph Stiglitz noted that most bailout money to Greece has gone to save the German and French banks that, back in 2010, owned billions of dollars of Greek debt. Now, that debt is largely in the hands of European Union institutions and the International Monetary Fund - bodies, he argued, that were now lending Greece more money so Athens could pay them back.