The European Union's monetary affairs chief urged the bloc's leaders on Friday to agree on a standby aid package for Greece next week after Athens said it could seek IMF help if it gets no firm promise of European aid.

EU heads of state and government are expected to discuss the issue at a summit in Brussels next week.

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 because of German reluctance.

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.

Athens raised the stakes on Thursday in its quest for EU help to tackle its debt crisis, saying it could not achieve promised deficit cuts if its borrowing costs remain so high and may have to call in the International Monetary Fund.

But Athens dismissed a report it was planning to turn to the global lender as soon as early April if EU leaders do not agree on a rescue plan next week, calling IMF aid a last resort and saying all options were still open.

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.

EU member states are by far the biggest source of revenue for the IMF, Barroso said, according to the transcript of an interview with broadcaster France 24 recorded on Thursday.

So it's not a question of prestige, it's a question of seeing what is the best way to respond to the situation.

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

Greek Prime Minister George Papandreou said on Thursday he wanted a decision at the 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.

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 329 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 is scheduled to address a conference organized by the main labor confederation in northern Greece at 1200 GMT. Unions have staged strikes and street protests against austerity measures in recent weeks.

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.

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.

GERMAN CONCERN

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 rescue arrangement.

After initially excluding any recourse to the IMF inside the currency bloc, German government sources have begun this week to say Berlin might not oppose it.

EU diplomats said this reflected mostly domestic political and legal pressures against a euro zone rescue for Greece.

The German government does not rule out IMF support, a government spokesman said on Friday.

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, who is head of the Financial Stability Board. 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.

The EU 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.

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

International Monetary Fund European union European central bank