The main option under consideration for Greece now is a voluntary deal by investors to maintain their Greek bond holdings over the period of another EU/IMF program from 2011 to 2014, euro zone sources said.

Since Monday that is the main option under consideration, one source with insight into the discussions on Greek debt said, referring to the Monday meeting of euro zone finance ministers.

Anything, 'soft' or 'hard', in terms of debt restructuring that could eventually trigger a credit event, is off the table, said the source, adding euro zone officials had consulted rating agencies on what action would trigger a credit event.

A credit event would force the paying out of credit default swaps (CDS), instruments that provide investors with insurance against a default.

A voluntary deal with investors could be part of a new package of Greek reforms and austerity and more EU/IMF funding from 2011 to 2014, the euro zone source said. We hope to have an agreement by the end of June, the source said.

The source noted that such an option would include not only not selling down banks' positions held in Greek debt, but also actually buying some Greek bonds to replace issues that matured over the length of the programme.

The current Greek programme, under which Athens is to get 110 billion euros ($155 billion) in emergency loans, was agreed in May 2010 for three years. But Greece has fallen behind schedule with reforms and meeting austerity targets and is unlikely to be able to return to markets next year as originally planned.

Most market participants believe Greece's dire finances will force it to restructure its debt at some point. A Reuters poll last week showed that among 28 mainly sell-side economists and 15 fund managers, only three thought a restructuring could be avoided.

There is great pressure on Greece from the euro zone to announce additional fiscal consolidation steps, structural reforms and to move quickly ahead with privatization to raise additional funds, sources said.

The chairman of euro zone finance ministers Jean-Claude Juncker said on Tuesday that as a last resort, if privatization and additional austerity steps do not work, a soft restructuring of Greek debt could be considered.

Such a soft restructuring could involve the extension of maturities of Greek debt.

The reprofiling we talked about, and nothing is decided, would be a voluntary move from private bondholders and would essentially consist of a swap between existing obligations and obligations with a longer maturity, said a second euro zone source with knowledge of the talks.

But the first source said a maturity extension, even if voluntary, would still decrease its net present value and so trigger a credit event.

This could be dangerous, the first source said, because it was not clear what chain reaction would follow in terms of contagion and liquidity in the financial sector.

The first source said that the position of the European Central Bank was that in the case of a credit event triggering the pay-outs of Greek CDSs, the ECB would stop accepting Greek bonds as collateral, putting Greek bank liquidity in question.

A voluntary deal to maintain exposure to Greece would not be a credit event and the European Central Bank would back it, the source said.

It is clear the ECB believes that Greece can do without debt reprofiling, but with extra money, a third euro zone source familiar with the discussions said.

A fourth source also confirmed that the main option under discussion now was for investors to maintain, on a voluntary basis, their exposure to Greece.

Economic and Monetary Affairs Commissioner Olli Rehn said on Wednesday that a deal for investors to maintain exposure to Greece was being considered.

This would be similar to the case of Portugal, which has to seek such an agreement as part of its bailout package from the European Union and the International Monetary Fund.

We can see if a Vienna type initiative of maintaining exposure by banks in Greece could be helpful and in that context we will also examine the feasibility of a voluntary rescheduling and I underline the word voluntary, Rehn said.

The Vienna Initiative was an agreement of the European Central Bank, the European Bank for Reconstruction and Development, regulators and banks with subsidiaries in central and eastern Europe from January 2009.

The initiative, launched at the height of the financial crisis triggered by the collapse of investment bank Lehman Brothers, meant parent bank groups publicly committed to maintain their exposures and recapitalize their subsidiaries in central and eastern European countries as part of financial aid packages from the European Union and the IMF.

Of EU members, Latvia, Hungary and Romania received such packages and IMF data shows that the commitments of banks under the initiative have been honored.

(Additional reporting by Julien Toyer in Brussels; Reporting by Jan Strupczewski; Editing by Ruth Pitchford)

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