EU seeks firm Greek aid plan

The European Union's monetary affairs chief urged the bloc's leaders on Friday to agree a standby aid package for Greece next week but France and Germany struck different notes and the euro slid.

EU heads of state and government 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 remain so high and may have to call in the International Monetary Fund.

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, EU Economic and Monetary Affairs Commissioner Olli Rehn said.

Despite the EU's verbal assurances of support, investors fear it could prove impossible to construct a euro zone financial safety net for the currency area's most heavily indebted member, largely because of German reluctance.

Market doubts about a rescue plan pushed the euro to a one-week low on Friday while the premium investors demand to buy 10-year Greek government bonds rather than German Bunds continued to rise.

A French government source said on Friday that France's priority was to find a European solution for the Greek debt crisis, adding that talk of a loan from the International Monetary Fund was premature.

But Berlin said it did not rule out IMF aid, easing its resistance to any solution to Athens' debt woes coming from outside the European family.

At this time, in which no decisions have been made and no decisions are in the pipeline, the government has not excluded IMF aid, government spokesman Ulrich Wilhelm told a news conference. Each country can decide on its own whether to request IMF aid.

EU diplomats say this softening reflected mostly domestic political and legal pressures against a euro zone rescue, although Finance Minister Wolfgang Schaeuble's spokesman said he was lukewarm about the idea of IMF help.

German Chancellor Angela Merkel, facing public opposition to bailing out Greece ahead of a crucial regional election in May, has taken the hardest line against any EU rescue arrangement.

The bloc is divided. While the Netherlands and Italy have said the IMF should not be ruled out, leaders of France, the Eurogroup of finance ministers and the European Central Bank have said it would be a blow to economic and monetary union if a member were to go elsewhere for a bailout.

The issue continued to weigh on the euro.

The uncertainty over Greece is definitely weighing on the euro today. I think the market doubts whether next week's summit will produce anything more specific in terms of a plan for Greece, said Chris Turner, head of FX strategy at ING.

USURY

Greek Prime Minister George Papandreou appealed to unions, which have staged strikes and street protests against austerity measures, to support his efforts to escape the debt crisis.

With full honesty toward Greeks, we talked about the point we have reached -- one step before being unable to borrow, Papandreou told the annual congress of the country's biggest union, GSEE.

We must avoid paying usurious interest for decades, condemning the country to a deep recession, he said.

The premium investors demand to buy 10-year Greek government bonds rather than German Bunds continued to rise on Friday, with the 10-year Greek/German government bond yield spread widening as far as 333 basis points from 318 at Thursday's settlement.

Economists say such rates would compound Greece's problems in a year when it has to raise 53 billion euros ($72.4 billion), 20 billion of it in refinancing between April 20 and end May.

Papandreou said on Thursday he wanted a decision at next week's summit on a plan for financial support if needed, saying a visible EU mechanism could force market rates down and make it unnecessary for Greece to go to the IMF.

Athens aims to shrink its budget deficit by four percentage points to 8.7 percent of GDP this year, with its economy seen contracting by 2 percent, based on central bank projections.

An opinion poll on Friday showed two-thirds of Greeks expect the fiscal crisis to last more than two years. The survey by polling agency Metron Analysis for newspaper Eleftheros Typos also showed 72 percent think Greece will need aid from the EU.

PRESTIGE

Rehn's boss, European Commission President Jose Manuel Barroso, said turning to the IMF would not mean a loss of prestige but the EU was ready to do whatever it took to shore up Greek financial stability.

It's not a question of prestige, it's a question of seeing what is the best way to respond to the situation, Barroso said, according to the transcript of an interview with broadcaster France 24 recorded on Thursday.

He said the euro area was ready to take all the necessary measures to guarantee Greece's financial stability.

A Commission spokesman said Rehn and Barroso were fully in agreement over possible measures for Greece.

European Central Bank member Mario Draghi said stronger budget rules were the antidote to a repeat of the Greek crisis.

Obviously we need stricter rules, said Draghi. It is still too early to say what these should look like. But the Greek crisis showed us, that we need to make our system more resilient.

(Additional reporting by Sophie Hardach and James Mackenzie in Paris and George Georgiopoulos in Athens, writing by Mike Peacock; Editing by Susan Fenton)