Sort it out yourselves, Germany tells Greece

Chancellor Angela Merkel has ruled out rescuing Greece's sick economy after days of speculation that Germany would lead the EU effort to safeguard the euro. Last night, European leaders appeared divided over their response to the crisis as the currency continued to weaken on the global foreign exchange markets.

For while the 16 nations that use the euro vow to take "determined and co-ordinated action, if needed, to safeguard financial stability in the euro area," Brussels has offered scant remedy for the Greek situation or plans to prevent its contagion.

Yesterday's summit was in effect a test of Europe's ability to run a single currency with 16 separate national fiscal policies. If attacks on the euro by currency speculators continue (as is widely expected) the question of financial aid is almost certain to be revisited.

The central dilemma has not been solved. Either bail-out Greece and risk having to rescue other PIGS later (actually, PIIGS – as in Portugal, Italy, Ireland, Greece and Spain), or insist that Greece (and others) solve their budget problems with deep cuts in public spending. The latter risks further currency turmoil (at minimum) or the expulsion of underperforming or imprudent members (in extremis).

"It's a political message that we wanted to send out," EU President Herman Van Rompuy explained to reporters in Brussels. "The Greek government will take the responsibility for cleaning up its public finances."

The drive to deny a bail-out package comes from German. "Germany is stepping totally on the brakes on financial assistance," an EU diplomat told the Guardian. "On legal grounds, on constitutional grounds and on principle."

The episode highlights divisions in the formation of the euro. Berlin's position is in sharp contrast to Paris, which has been advocating a financial bail-out. "Germany cannot justify its taxpayers having to finance the lovely lives of the Greeks," said a senior diplomat.

Paris, by contrast, would prefer to spend their way out of the current crisis, through loans or loan guarantees to Greece or the issue of bonds. But with Europe struggling to emerge from recession, the will to bail-out a country that's been cooking its books now appears to be profoundly lacking.

Notes Ian Traynor in the Guardian: "The Greeks lied their way into the euro-zone in 2001 through fiddling the figures, enjoyed the rising living standards for years, and cannot now expect the Germans and others to pick up the bill." ·