Rescue for Greece tops eurozone meeting

(BRUSSELS) - A strategy to rescue Greece with tens of billions of euros on condition of huge budget cuts being applied is the burning issue at a session of eurozone finance ministers here on Monday.

Finance ministers from the 16 eurozone countries were also expected to argue over longer-term ways of helping member economies in trouble, for example through emergency loans and a new European monetary fund.

French Finance Minister Christine Lagarde said in comments published on Monday that EU experts have been working on the contingency plan for Greece so that if the money is needed "all we would have to do is press the button."

In her interview with the Wall Street Journal, however, she also emphasised that there was no "bailout plan" for Greece and voiced guarded support for the idea mooted in recent days of a European version of the IMF.

"The idea is to get a result in terms of Europe's options for addressing the Greek problems if they ever get to that stage," a European source told AFP on condition of anonymity ahead of the talks, which are due to start at 1600 GMT.

Eurozone rules ban bailouts for member states experiencing financial crises.

The hope among European leaders is that having a safety net in place will reassure investors that Greece will not default on its debts and therefore help lower the rate at which Greece is able to raise funds on international markets.

That would allow Greece to meet its requirements for debt repayments and public spending this year. Greek Prime Minister George Papandreou said last month that Greece's borrowing needs were assured only until mid-March.

The Greek crisis has caused severe strains for the eurozone and therefore for the wider European Union which has forced the Greek government to announce enormous budget cuts and reforms of its economy.

A meeting of EU ministers is to decide on Tuesday if the latest Greek programme is enough, and any resulting help for Athens is likely to be linked to application of the measures.

But many analysts say that some form of special support for Greece, while probably relieving tensions in the short term, could raise problems about the credibility of eurozone public finances in the longer term.

They say that such doubts could be even stronger in the event of any agreement for a new structure for countries in trouble, such as a European monetary fund, while noting that the process would probably take years.

But the immediate problem for eurozone ministers is whether or not to help Greece.

"This would be the first ever financial backstop facility put in place between European member countries to deal with a sovereign issue," analysts at Britain's Royal Bank of Scotland said in a note to clients.

"Doubtful observers about the ability of EMU (European Monetary Union) to respond will need to revise their thoughts," they said, adding that the rescue itself would probably take place in the second half of this year.

The Guardian newspaper cited sources in Brussels as saying the aid could rise to 25 billion euros (34 billion dollars).

The yield, or interest rate, on Greek bonds has spiked to record highs in recent weeks after Greece revealed it had a public deficit of 12.7 percent -- far more than previously estimated and the worst level in the eurozone.

The pressure on financial markets has eased as Greece has approved ever deeper austerity measures to raise taxes and cut public spending but that in turn has provoked a wave of social protest against the government.

The talks in Brussels are to be followed on Tuesday by a meeting of finance ministers from all the 27 European Union member states where proposals for stricter financial market regulation in Europe are to be discussed.

Britain fears the plans could hurt the City of London's status as an international financial hub and the United States has also complained that the proposals may impact on US hedge funds operating in Europe.

Economic & Financial Affairs Council