Eurozone readies possible bailout for Greece

/ Source: The Associated Press

Eurozone finance ministers agreed Monday to offer financial help for Greece — likely in the form of bilateral loans — but refused to give details until European Union leaders make a final decision on the potential bailout.

Jean-Claude Juncker, the head of the eurozone group, said Greece had not asked other members of Europe's currency union for financial help, but said they could swiftly grant "bilateral aid" if Athens asks.

Greece needs to borrow $74 billion (euro54 billion ) this year to plug a yawning gap between revenue and expenses, and has been forced to offer high interest rates to get investors to lend it money.

A Greek default would be a disaster for the euro, and economists and financial markets assume the EU would find some way to step in and stop it.

Juncker refused to give details on the potential bailout, saying the 16 nations that use the euro still need to work out the technicalities before a March 25-26 meeting of EU leaders, who would make the final decision on the size and the type of financial rescue.

French Finance Minister Christine Lagarde said ministers had not talked about an amount, and insisted — as do most European officials — that a bailout might not be needed.

"It's not a mechanism that we need today," she told reporters. "There is no need to anticipate putting it into place."

In a statement, eurozone nations said financial help would not come cheap.

"The objective would not be to provide financing at average euro area interest rates, but to safeguard financial stability in the euro area as a whole," they said. "The proposals ... would provide strong incentives to return to markets as soon as possible."

Markets are still not convinced that Greece's debt is a good investment without a bailout. The spread, or difference, between 10-year German and Greek bonds remained around 3 percentage points on Monday.

Greece has warned that its budget problems will worsen unless interest rates come down — and the eurozone pledge of help is one way of trying to convince markets that they should charge less for Greek debt.

Juncker said the potential financial rescue would not violate an EU treaty that prevents one country taking on the debt of another member or any other national laws. He said they were not considering bilateral loan guarantees — which would leave loans from individual eurozone nations to Greece as the most likely option.

Eurozone governments have been reluctant to step in to help Greece, insisting that Athens make big budget cuts first.

Greece duly announced more budget reductions to save another euro4.8 billion this year including public sector wage cuts that angered unions and sparked two nationwide strikes last week. The government concede that the cutbacks will deepen the economic recession this year.

Greek Prime Minister George Papandreou has warned he will turn to the International Monetary Fund if eurozone nations don't follow through a vague pledge to help the country.

He has so far won support in fighting financial market speculation on the country's borrowings — French, German and Spanish leaders have called for an EU crackdown on credit default swaps on bonds, which insure traders against the risk of a country's default.