Merkel softens stance on bailout
Germany has calmed fears that it wants to force losses on Greece's private creditors, agreeing with France that any private sector involvement should be voluntary as part of a new rescue plan.
Chancellor Angela Merkel and French President Nicolas Sarkozy said they had reached common ground on the delicate topic of involving Greece's bondholders.
Ms Merkel's statement after the Berlin meeting appeared to back away from demands made previously by her finance minister, who had called on banks and other private bondholders to give Greece an extra seven years to repay its bonds.
Rating agencies as well as the European Central Bank, however, warned that such a move would be likely to count as a "credit event", a partial default by Greece that could spread panic on financial markets and hurt Greek banks.
Both leaders stressed ahead of a working lunch that a "voluntary" extension of maturities of Greek government bonds held by private investors should be part of that solution in order to ensure market stability.
"There are worries that we want to cause a credit event," said Ms Merkel. "We do not want that. This is about a voluntary participation."
Ms Merkel and her government had in recent months been pushing for private creditors to share a larger part of the burden, amid political pressure from German voters who complained about having to support last year's 110 billion euro (£68 billion) package.
The two leaders said a new rescue plan for Greece needed to be in place soon to help the country and ensure the stability of the euro, with Ms Merkel saying: "The quicker the better."
Meanwhile, Greek prime minister George Papandreou has replaced his finance minister as part of a cabinet reshuffle aimed at countering widespread anger over tough new austerity measures. Evangelos Venizelos is the new finance minister, replacing George Papaconstantinou, who moves to the environment ministry.
Government portfolios were also redistributed to address demands for faster reform from Greece's debt monitors at the EU and IMF, with a new ministry for administrative reform created to help scale back the country's bloated public sector.