Greek PM warns could resort to IMF, rejects eurozone ban

(BRUSSELS) - Greek Prime Minister George Papandreou warned on Thursday that Greece might have to resort to IMF aid and rejected a German call to expel eurozone nations in serious breach of fiscal rules.

His remarks raised the stakes over Greek pleas for greater help, and the euro fell on the growing signs of tension between the two sides.

"This is where Europe must come in and say 'OK in this case we either can provide what an IMF would provide ... or in the end Greece may have to choose the option to go to the IMF'," Papandreou told the EU parliament in Brussels.

The euro had already come under intense pressure on Wednesday when Papandreou raised the prospect that Greece could seek help directly from the International Monetary Fund.

EU bodies, such as the European Central Bank, have made clear that such an approach to an outside body would be unwelcome.

Some analysts say it would be a big embarrassment and could significantly weaken the credibility of the eurozone and its rule.

The euro fell in London to 1.3648 dollars, then firmed to 1.3673 dollars in early Thursday trade but was still down from 1.3735 dollars earlier in New York.

At CMC Markets, analyst Michael Hewson said: "All this talk of a bail-out plan had been buoying the euro but the market now seems to realise that talking about a bailout and delivering one are two totally different things."

The Greek prime minister was trenchant in his remarks on the suggestion from Germany that in the long-run, a country which persistently broke the rules on public finances would have to leave the eurozone.

"Simply punishing may not be the solution, and punishment and kicking out someone out would be a failure not only of the country (kicked out) but also of the (European) union" Papandreou said.

"One can be punished ... because of bad conduct, there are specific protocols defining that exactly, but the thing is that we have to make sure that countries who have problems are also supported," he added.

On Wednesday, German Chancellor Angela Merkel said that in light of the fiscal crisis in Greece, Europe should be able to exclude countries that break the rules from the eurozone as a measure of last resort.

Eurozone rules require a country to keep its public or budget deficit to less than three percent of Gross Domestic Product but last year Greece's shortfall came to nearly 13 percent.

Papandreou stressed that Greece had not put out a call for aid but wanted a "loaded gun" to ward off speculators who are forcing up the interest rate Athens must pay to raise crucial new loans on the markets.

"We are not asking for money from Germans, French, the Italians or other workers or taxpayers.

"What we are saying is we need strong political support in order to make these necessary reforms and make sure that we are not going to pay more than necessary in order to get these reforms enacted," he told MEPs.

"We're not going to default," Papandreou insisted.