Barroso calls for swift EU agreement on aid for Greece

(BRUSSELS) - EU Commission chief Jose Manuel Barroso on Friday urged member states to approve "as soon as possible" the creation of a financial aid mechanism for Greece to use if necessary.

"We cannot prolong any further the current situation," Barroso warned days ahead of a European summit.

"I urge the EU's leaders to agree on this instrument as soon as possible," he stressed.

With his statement Barroso was making an implicit appeal to German Chancellor Angela Merkel, who has been reticent to offer help, to approve a mechanism for offering aid to Athens when the 27 heads of state and government meet in Brussels next Thursday and Friday.

The help Barroso has in mind would be "a system of coordinated bilateral loans," and as such would be compatible with EU law which bans bailout loans to any of the 16 nations, including Greece, that use the euro currency.

EU finance ministers agreed the broad lines of such a plan when they met in the Belgian capital on Monday.

Such a bailout mechanism would be unprecedented in eurozone history and would need to be endorsed by the EU leaders in order to work, with the biggest European Union member Germany the least inclined to pull out the cheque book.

Germany has in recent days shown itself more open to the possibility of a Greek bailout by the International Monetary Fund (IMF), something which some of its fellow members see as a potential disaster for the credibility of the eurozone.

Barroso underlined that the agreement "would be a euro area instrument," and therefore wouldn't require action from Britain and the other EU members that don't use the common currency.

However he did not rule out the possibility of additional moves by the IMF.

He said he did "not want to speculate" on that possibility.

Nor did he wish to go into any great detail about the sums involved but a European source said Greece would require "a bit more than 22 billion euros (30 million euros)," to help it service its massive debt burden.

The aid plan would allow Greece to borrow at "lower interest rates than it is currently paying" on the markets, the source said.

The yield on Greek 10-year bonds rose to 6.333 percent from 6.265 percent on Thursday, more than double the rate for German bonds.

According to another European source, several partially or fully state-owned banks and financial institutions across Europe are considered as potential candidates to offer loans, including France's Caisse des Depots, the Franco-Belgian bank Dexia, and if Berlin gives the green light, regional German banks.

An EU document circulating round European capitals calls for voluntary loans which could then be utilised in a coordinated manner.

Greek Prime Minister George Papandreou has not yet asked for a cash bailout from the eurozone, the IMF or anyone else, but stressed during a visit to Brussels this week that his government needs "a loaded gun" to ward off speculators -- explicit backing from its partners.

Papandreou said Friday that his country had been "one step from being unable to borrow".

The Socialist government is trying to plug leaks in its budget -- which last year ended up over 30 billion euros short -- and bring an end to decades of fiscal waste that accumulated into nearly 300 billion euros of state debt.

The aid plan would allow Greece to borrow at "lower interest rates than it is currently paying" on the markets, the source said.