(Reuters) - German Chancellor Angela Merkel will make her first visit to Greece next week since the euro zone debt crisis erupted, in a show of support for Athens after it said it would run out of money at the end of November without fresh international aid.
Greek Prime Minister Antonis Samaras hailed the trip as a positive development at a time when his country is locked in negotiations with euro zone and IMF creditors who are holding back some 31.5 billion euros ($41 billion) in urgently needed loans.
"The key is liquidity. That is why the next credit tranche is so important for us," Samaras told the German business daily Handelsblatt. Asked how long Greece could manage without it, he said: "Until the end of November. Then the coffers are empty."
A German government spokesman said Merkel would travel to Athens on Tuesday for her first visit since the crisis began in late 2009, when a previous government revealed that Greece had hugely understated its public deficit.
"It is a trip that of course happens to the backdrop of this very difficult situation that Greece is going through right now, the massive adjustment and reform measures that have shaped Greece for the past two years," Merkel's spokesman Steffen Seibert told a news conference.
"We see that the reform efforts have increased under the Samaras government and we want to support that."
The visit appears to signal that Europe's most powerful leader has decided it is essential to keep Greece in the single currency area despite its repeated failure to meet fiscal targets and economic reform commitments under two bailout programs.
"This is symbolically very important. It points clearly to the fact that Merkel is not going to drop Greece, even though things are not going well there," said Carsten Brzeski, senior European economist at ING bank.
Merkel sought to convey the message of support she wants to bring to the Greek people in comments to a conference of young conservatives in the German city of Rostock.
"Just imagine what is demanded of the people in Greece. That is not easy. And if we are good Europeans than we cannot pretend not to care," she said.
"But our job is to find a way together so Europe will be stronger at the end, and that the generation of the 20-year olds, the 30-year olds, the 15-year olds of today will still have a chance to live in prosperity in Europe. This is our job."
DICTATING AUSTERITY?
Merkel has been vilified in some Greek media as dictating devastating austerity to Greece. One newspaper dressed her in a Nazi uniform on its cover. Germany's popular press meanwhile has systematically depicted the Greeks as work-shy tax cheats.
Greek labor unions announced a work stoppage and a protest rally outside parliament during Merkel's visit, and a far-right anti-bailout party, the Independent Greeks, will demonstrate at the German embassy "to express in front of Chancellor Angela Merkel our opposition to Greece becoming a German protectorate".
Greece's crisis poses potentially the most serious risk to Merkel's re-election prospects next year, unless a way can be found to keep Athens afloat and avoid another debt restructuring before the German parliamentary election next September.
In Brussels, a senior euro zone official said no decisions would be taken on Greece at the next European Union summit on October 18-19 because preparatory work on Greek reforms and the country's macroeconomic situation will not be ready by then.
A Greek official told reporters negotiations with the so-called troika of the European Commission, European Central Bank and International Monetary Fund were intensifying ahead of a euro zonefinance ministers' meeting in Luxembourg next Monday.
"The government and the troika are working around the clock so that the progress is noted at Monday's Eurogroup and the Greek issue gets on the EU summit's agenda," the official said.
Talks have been hampered by serious differences among the creditors over the long-term sustainability of Greece's debt, with the IMF arguing that bondholders will have to take further writedowns, sources on both sides said. European governments and the European Central Bank are now the biggest creditors.
That would mean Germany, the biggest contributor to euro zone rescue funds, potentially having to write off billions of euros lent to Athens during the crisis.
Merkel faces strong resistance in her own centre-right coalition against giving any further aid to Greece, depicted by rebel lawmakers as a bottomless pit.
A senior official close to Merkel told Reuters last week it made no political sense to bring individual requests for aid to Spain, Greece and Cyprus to parliament piecemeal, and it would be better to bundle them together in one package.
Spain, the euro zone's fourth biggest economy, has not yet requested a euro zone assistance package but is discussing the conditions with European authorities and the ECB.
SPAIN IN FOCUS
The leaders of Spain, France and Italy discussed the euro zone crisis on the sidelines of a Mediterranean summit in Malta on Friday.
Euro zone sources say Spain is ready to apply for a partial bailout that would keep it in the capital markets and trigger ECB buying of its short-term bonds, but Germany has so far urged Madrid to hold off.
Spanish Prime Minister Mariano Rajoy stuck to his line that Madrid would seek the best decision "without ruling out any possibility".
French President Francois Hollande also sidestepped the question of whether Madrid would have to seek help.
"It's up to the Spanish to decide on their own what to do," Hollande said. "... either to put forward an aid plan with the conditions attached, which would have to be clarified, or not, if they don't need it."
Spanish borrowing costs have fallen from peaks above 7 percent since ECB President Mario Draghi announced that the central bank was ready to make unlimited purchases of bonds of euro zone states that signed up to strict terms and supervision.
Madrid has to refinance some 28.5 billion euros in maturing debt later this month in a major funding hump.
Draghi made clear on Thursday the ECB was ready to act but it was now up to euro zone governments to make the next move.
Senior central bank sources told Reuters the ECB envisages buying large volumes of sovereign bonds for a period of one to two months once the program is launched, but would then suspend purchases for an assessment period.
During that time, inspectors from the EU or the troika would assess whether a country is meeting the conditions of its aid program, to ensure continued compliance.
(Additional reporting by Karolina Tagaris, Dina Kyriakidou and Renee Maltezou in Athens, Noah Barkin and Michelle Martin in Berlin and Julien Toyer in Madrid; Writing by Paul Taylor; Editing by Peter Graff and Michael Roddy)
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