Germany mulls 'firewall' for Greek debt crisis: reports

(BERLIN) - Germany might use loan guarantees to build an EU "firewall" around the Greek debt crisis, press reports said Wednesday, easing market jitters slightly ahead of emergency talks in Brussels.

"The plan would be undertaken within the EU framework but led by Germany," Europe's biggest economy, the Wall Street Journal Europe reported, citing a source familiar with the matter.

"Germany has concluded that guarantees are likely the most efficient way to prevent the spread of the debt crisis," a source added.

A finance minstry spokesman stressed however that "no decision has been taken."

Finance ministers from the 16-nation eurozone, which includes Grece, were set to discuss the crisis in Brussels on Wednesday and leaders from the 27-nation European Union have scheduled an emergency summit on Thursday.

Commerzbank chief economist Joerg Kraemer said loan guarantees would be a likely focus of aid because "in contrast to financial support, they do not immediately result in payments" and could be easier to sell to the public.

"Taxpayers would probably perceive a European bail-out as a giveaway," Capital Economics economist Ben May noted, making it hard for other governments to push though tough fiscal measures of their own.

But the Financial Times cited an unnamed German official as saying eurozone heavyweight Berlin would nonetheless "take a significant step."

"We are thinking about what we should do if the crisis spills from Greece into other euro countries," the official said.

"It's more about finding firewalls, containing the problem, than principally about helping the Greeks."

The reports eased pressure on Greek bonds on Tuesday, indicating that investors were becoming less jittery about Athens's creditworthiness.

Analysts warned that markets would watch closely to see if Greece had to accept strict conditions in exchange for aid since others users of the euro Ireland, Portugal and Spain might be next in line for help.

"One thing which is for certain is that any bail-out will have tough conditions attached, making it a bitter pill to swallow," May said.

Greek workers already object to government plans to tackle the crisis and a strike by civil servants slammed the country Wednesday with government offices, schools and colleges closed and hospitals ensuring only emergency services.

Back in Germany, press reports said Finance Minister Wolfgang Schaeuble would inform members of his CDU/CSU conservative bloc of possible rescue plans, and that leaders of the parties behind Chancellor Angela Merkel might provide political cover.

"No decision on support of any kind has been taken yet, and of course no details of any imaginable measures are known. But help for Greece is obviously on the way - and quite early, too," Commerzbank's Kraemer said.

Greece will not have to redeem a major amount of debt until April, but "the EU seems bent on making sure that it reacts in time and not at the last minute," he added.

Greece's massive public deficit and debt have raised alarm over public finances throughout the eurozone and plunged the single currency area into its worst-ever crisis.

Interest rates on government bonds from several countries have spiked in recent weeks, indicating that investors see them as increasingly risky bets and pushing these nations' borrowing costs higher.

"The EU will be walking a delicate line between forestalling a greater disaster and letting chronic overspenders like Greece off easy, which could further damage trust in the euro," the Wall Street Journal said.

The euro fell to 1.3775 dollars in London on Wednesday from 1.3791 dollars in New York trading late on Tuesday.

- Dow Jones Newswires contributed to this story -