German Chancellor Angela Merkel and French President FrancoisHollande said they would consider measures to spur economic growthin Greece as long as voters there committed to the austeritydemanded to stay in the euro.

Requests for measures to bolster growth will be “considered” andthe European Union may also “approach Greece with proposals,”Merkel said late yesterday at a joint press conference withHollande during his first official visit to Berlin. “Greece canstay in the euro area,” and “Greek citizens will be voting onexactly that.”

Their encounter, the first meeting between the chiefs ofEurope's two biggest economies, came after Greece announced areturn to the ballot box following the collapse of talks on forminga government. The euro and stocks fell as investors speculated thatGreece may drop out of the single currency more than two yearsafter its budget-deficit blowout triggered a financial crisisacross Europe that continues to rage.

Hollande saw Merkel less than 12 hours after being sworn in aspresident and an arrival that was delayed by a lighting strike onhis plane from Paris. With Greece in its fifth year of recession,the French Socialist returned to a theme he pressed throughout hiselection campaign, saying policy makers must offer the prospect ofsomething more than austerity.

“I'll respect the vote of the Greeks whatever it is,” Hollandesaid. “Yet my responsibility is to give Greece a signal. I see thesuffering and challenges that the Greeks feel. The Greeks need toknow we'll come with growth measures that will allow them to stayin the euro zone.”

With the debt crisis now in a third year, the leaders made ashow of German-French unity after months of trading barbs on crisispolicy. Merkel publicly backed Nicolas Sarkozy for a second term,while Hollande criticized her exclusive focus on deficitcutting.

They found common cause after the collapse of talks in Athens onforming a government stirred speculation that anti-bailout partieswould make further gains and tear up the terms of Greece's 240billion euros ($305 billion) of aid.

Banks dragged the Stoxx Europe 600 Index to its lowest levelsince December. The euro fell as much as 0.4 percent to $1.2681,the lowest level since January, as the prospect of new Greekelections prompted renewed speculation of a euro exit and potentialcontagion that would wreak untold damage to Europe's financialsystem.

Greek 'Challenges'

Merkel said there was an agreed bailout program between Greeceand its creditors that “has to be adhered to.” At the same time,she said she had called New Democracy leader Antonis Samaras, whowon the May 6 vote, and caretaker Prime Minister Lucas Papademos tosay “that we are prepared to help Greece overcome its structuralchallenges, to help with growth.”

She said that there were differences in emphasis on growth withHollande. Growth will feature in talks among euro leaders on May 23and again at a summit at the end of June, she said.

The French president, who has called for Europe'sGerman-inspired budget treaty to be renegotiated, said that hewanted “growth aspects to be real and translatable into reality.”At the June summit, “everything needs to be put on the table,”including investment spending and joint euro-area bonds, he said.Merkel rejects euro bonds.

Greece may trigger a crisis “where you're really going to finddifferences that matter” between Merkel and Hollande, IrwinCollier, a political scientist at the Free University in Berlin,said on Bloomberg TV's “The Pulse” with Francine Lacqua. “The nextcouple of months are going to be very tentative for therelationship.”

Hollande's arrival in Berlin came at the second attempt afterhis plane was struck by lightning, forcing him to turn back andboard a second aircraft.

Merkel said she was “very glad” that Hollande came to Germanythe day of his inauguration. “We are even more glad because he didthis despite the lightning strike. Maybe this is good omen forcooperation.”

Bild, Germany's most-read newspaper, underscored the domesticchallenges Merkel faces over Greece, saying in an editorial todaythat the inability to form a government “makes it clear once andfor all: the Greeks are saying good-bye to the euro.”

Europe requires “clear rules” on debt limits and economic data,Bild said. “Whoever swears allegiance to those rules is allowed in.Everyone has to observe a euro stop sign. Not just the Greeks. Whenthat's clear to everyone after this crisis, Europe will be fit forthe future again.”

Bloomberg News

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