European Commission President Jose Manuel Barroso urged EU member states today to agree a standby aid package Greece after Athens said it could turn to the IMF for help.
Mr Barroso said the 16 countries that share the euro currency should be ready to make co-ordinated bilateral loans to Greece to help it reduce its budget deficit and refinance its debts, which are nearing 120 per cent of gross domestic product.
In a move that appeared designed to shake EU member states into action and in particular to win German backing for a rescue package, Mr Barroso said the situation could not be allowed to be go on for much longer and action was needed rapidly.
"The European Commission is ready to make a proposal for an instrument for coordinated assistance for Greece," the head of the European Union's executive said in a statement in Brussels.
"Such an instrument will be constituted by a system of coordinated bilateral loans and will be compatible with the (euro zone's) no bailout clause and with strict conditionality."
EU leaders will discuss the issue at a summit in Brussels next week after Greece said it could not deliver promised deficit cuts if its borrowing costs remained so high and that it may have to seek help from the International Monetary Fund.
Mr Barroso did not say how much aid Greece would need but diplomatic sources put the figure at up to €22 billion. Athens has not requested any aid and hopes it will not need it.
But Mr Barroso said Greece's situation could not be allowed to go unchecked and that EU member states, and specifically the euro zone, must work together rapidly.
"Our objective is an instrument designed within the euro area with conditions and management established by the euro area and its institutions," he said. "I urge all member states to agree as soon as possible on this instrument... We believe we cannot prolong any further the current situation."
Earlier the European Union's monetary affairs chief urged the region's leaders today to agree an aid package for Greece at a summit.
Olli Rehn, the economic and monetary affairs commissioner, underlined the importance of reaching a deal after Greece's prime minister held out the prospect of seeking help from the International Monetary Fund, a move that could embarrass the EU.
"It is essential that when we deal with a euro area country there is a European lead and a European responsibility," Mr Rehn told a conference in Brussels.
He later told reporters it was important to conclude work on setting up a safety net for Greece in case the country requests financial aid to service its debts.
“It is important that the EU in the course of next week comes to a more specific conclusion, specific political conclusion about the European framework for coordinated and conditional action, if needed and required," he said.
Greek prime minister George Papandreou urged EU heads of state and government to make a clear pledge of financial support at a summit in Brussels next Thursday and Friday, and said Greece could turn to the IMF instead as a last resort.
Mr Rehn said Greece's problems showed a clear need for reinforced economic policy coordination in the 16-country euro zone.
"Greece is now on track to address its fiscal imbalances but we are not out of the woods with it yet," he said.
“The primary aim must be to ensure a safe exit from the current precarious debt dynamics in a number of countries and subsequently to make sure that no country in the euro area will embark on such a path in the future."
Speaking more broadly, he said the worst of the economic crisis was over but the recovery was not yet self-sustainable.
Reuters