Greek Default Would Destroy Faith in Europe: Merkel

Allowing Greece to default on its debt now would destroy investor confidence in the euro zone and might spark contagion like that experienced after the bankruptcy of Lehman Brothers in 2008, German Chancellor Angela Merkel said on Sunday.

 "We need to take steps we can control," Merkel said, drawing a parallel between the Greek situation and that of Lehman, whose bankruptcy helped trigger the global financial crisis.

"What we can't do is destroy the confidence of all investors mid-course and get a situation where they say that if we've done it for Greece, we will also do it for Spain, for Belgium, or any other country. Then not a single person would put their money in Europe anymore."

 In a one-hour interview on the euro zone crisis with the popular German talk show host Guenther Jauch, Merkel said she relied on the view of the International Monetary Fund when assessing how to handle Greece.

As long as the IMF was convinced Greece's debt was sustainable, then she supported that position, she said.

 Merkel also made clear that she did not view a parliamentary vote in Germany on Thursday on the euro zone's rescue mechanism as "make-or-brake" for her government.

Because opposition parties support giving new powers to the so-called European Financial Stability Facility (EFSF), passage is not in question.

But some German politicians have suggested that if Merkel fails to win a majority with the conservative parties in her coalition — known in Germany as a "chancellor majority" — she should dissolve parliament and call new elections.

"We are talking about a law here, a completely normal law. The government needs a majority. The chancellor majority is what you need when you are voted in as chancellor, or in other special personnel cases," she said. "I want my own majority and I will fight for this."

She also said she was "appalled" at a lack of progress from the Group of 20 countries in forging a consensus on regulating banks and dealing with the "too big to fail" problem.