BERLIN (Reuters) - Germany's parliament was set to endorse the latest Greek bailout on Monday after Chancellor Angela Merkel rejected both domestic pressure to stop throwing good money after bad and international pleas to boost Europe's crisis defenses.
The world's leading economies in the G20 piled pressure on Berlin at the weekend to drop opposition to a bigger European bailout fund, telling Europe it must put up extra money if it wanted more help from other countries.
European Commission President Jose Manuel Barroso added his voice on Monday, saying he expected a decision on strengthening the euro zone's financial firewall during March, although not yet at an EU summit on Thursday and Friday.
Merkel, whose country provides the lion's share of the emergency funds, first faced a struggle to avoid having to rely on opposition votes to pass a 130-billion-euro ($175 billion) rescue program for Greece, its second since 2010.
In a speech to the Bundestag (lower house), the chancellor acknowledged there was no 100 percent guarantee that the bailout would work, but she rebuffed calls from rebels in her centre-right coalition to let Greece default and leave the euro.
"Nobody knows what would be the impact of rejecting the second Greek aid package on the other bailout countries, Portugal and Ireland, or on Spain and Italy, or the entire euro zone and the world," she said.
"As chancellor I have to take certain risks, but I cannot be reckless - my oath of office forbids that."
She called for speeding up payments into a 500-billion-euro permanent euro zone rescue fund so it is fully capitalized within two years instead of five, but said her government saw no need to debate a bigger overall safety cushion now.
"With the voluntary debt restructuring for Greece we are entering new territory. If it is a success, then the contagion risk for other countries will be further reduced. Now we need to wait and see what happens," she said.
Merkel faces strong resistance to further bailout spending from public opinion and influential media.
"Billions for Greece -- Stop!" Germany's best-selling newspaper Bild screamed across its front page.
"Don't go any further along this crazy path," it said, quoting leading economists who argue Greece would do better to default on its huge pile of sovereign debt and temporarily leaving the single currency.
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HUMILIATION?
For the opposition, Social Democratic (SPD) former finance minister Peer Steinbrueck said the "strategy of buying time has failed, because things have got worse and worse.
"Nearly two years after the first Greek aid package in May 2010, we are back to square one regarding Greece, regarding the risk of contagion to the euro zone, and regarding Germany," Steinbrueck said.
"Not only has the bill become more expensive but resentment and prejudice have grown considerably as well, with clichés about lazy Greeks running alongside images of ugly Germans."
Government spokesman Steffen Seibert said he was confident Merkel would get a majority from within her own coalition when asked about the likelihood that at least a dozen MPs would vote against the rescue package later on Monday.
If 20 or more rebel, the bill will only pass thanks to the support pledged by the centre-left opposition SPD and Greens.
That would be a humiliation for Merkel, raising doubts about her ability to cope with demands for more emergency funding for the euro zone and about her coalition's survival until elections due in 2013, when she is expected to seek a third term.
Facing huge domestic pressure to make sure Germany's euro zone partners get aid only in return for tough fiscal reforms - which Greece has failed to deliver - Berlin has sent conflicting signals on whether it will soften its stance.
Finance Minister Wolfgang Schaeuble, meeting G20 colleagues in Mexico this weekend, appeared open to merging the euro zone's temporary and permanent bailout funds to create a 750 billion euro ($1 trillion) war chest. This would open the door to extra International Monetary Fund (IMF) support as well.
Merkel stood firm in parliament on Monday but her "wait and see" line did not rule out a change of heart next month.
GERMANS LOSING PATIENCE
Merkel's position is driven partly by voter concerns and unease within her coalition, but also by a feeling in Berlin that market pressures are easing and there is no longer an urgent need to put up more money.
In fresh signs that the European Central Bank's move to flood banks with cheap three-year liquidity has helped stabilize bond markets, Italy and Belgium saw their borrowing costs sharply reduced at debt auctions on Monday.
But safe-haven German Bund futures hit a five-week high with traders citing Merkel's doubts about the success of the Greek rescue and her forecast of years of toil for the euro zone.
Ahead of a second injection of long-term cheap ECB money expected to total 500 billion euros on Wednesday, the central bank said it had kept its emergency government bond-buying program dormant for a second straight week.
An opinion poll published in a Sunday newspaper found 62 percent of Germans were against the second Greek rescue package while 33 percent were in favor. In a similar poll in September, 53 percent had been opposed and 43 percent in favor.
Interior Minister Hans-Peter Friedrich called on Greece to leave the euro zone, saying in a magazine interview its chances of recovery would be greater outside. It was the first time a cabinet member had publicly broken ranks.
But Friedrichs reverted to the government line in a statement on Monday, pledging to vote for the bailout. "I have no doubts about the chancellor's rescue course," he said.
Merkel needs 311 votes to reach a majority in the 620-member house. Her coalition holds 330 seats.
In a nail-biting September 27 vote on the European Financial Stability Facility (EFSF), 15 deputies in her coalition broke ranks, leaving her with a narrow majority of 315 seats on that occasion.
One of the dissidents from Merkel's CDU, Klaus-Peter Willsch, told Reuters on Sunday that "the mood in Germany is turning against further rescues for Greece.
"We've been promised all kinds of things that aren't fulfilled and then a few months later there's the need for another rescue package. The public's faith is fading fast."
Germans are growing impatient with what Schaeuble has described as a "bottomless pit" in Greece.
At the same time, there is a growing awareness in Germany, Europe's leading economy, that its own prosperity is at risk as the debt crisis sucks in more countries and stifles demand within the currency bloc for German exports.
German criticism of Greece has reopened wounds dating from World War Two. Protesters in Athens burned a German flag earlier this month while Greek newspapers have portrayed Merkel and Schaeuble in Nazi uniform.
Despite riding high in polls, Merkel has hit a rough patch - about 18 months before the next election - that has raised doubts about her grip on power.
(Additional reporting by Alice Baghdjian and Erik Kirschbaum; Editing by Paul Taylor/Janet McBride)
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