Finance ministers agreed in principle on Friday to create a permanent mechanism to handle economic crises in the euro zone, as preparations continued on an unprecedented aid package for debt-stricken Greece.

Ministers from the 16 euro currency countries reviewed events since announcing the standby loan package for Greece last Sunday and took a first step toward something more permanent to cope with difficulties the bloc might face in the future.

We've reached an agreement that we need to set up a permanent crisis (resolution) mechanism, Luxembourg Prime Minister Jean-Claude Juncker told a news conference in Madrid, where he chaired the talks.

The European Commission, the European Union executive, plans to air proposals on the issue on May 12 and the comment from Juncker suggested the scramble to come up with a plan for Greece under intense financial market pressure was prompting a push to improve crisis-resolution more generally.

Athens, meanwhile, sought to clarify further details of how an emergency loan package provided by its euro zone peers and the International Monetary Fund would work if it came to that.

Greek Prime Minister George Papandreou told parliament that any request to activate the 40-45 billion euro ($56-$63 billion) financial aid mechanism announced by euro zone governments would be made in the country's best interest if needed.

We are taking all the preparatory actions required, said Papandreou, whose Socialist government has announced drastic austerity measures in a bid to slash its deficit and allay financial market fears about its ability to honor its debts.

The European Commission, European Central Bank and IMF will send officials to Athens on Monday to discuss further aspects of what would be the first such rescue of a euro zone country in the 11 years since the launch of the common currency.

It is a matter of preparing a joint program of conditionality and financing if needed and if requested, European Monetary Affairs Commissioner Olli Rehn, also at the meeting in Madrid, said.

GREECE NOT YET ASKING

As it struggles to refinance a debt bigger than its economic output, Greece moved closer to activating that international aid when it said in a letter released to the media on Thursday that it was seeking talks with the IMF and European authorities.

Juncker said Athens had not requested activation of the aid mechanism. The letter sent yesterday ... reflected a desire by the Greek government to respect the procedures of the IMF, he said. Other ministers said likewise.

Under the agreement announced on Sunday, euro zone capitals would lend Greece up to 30 billion euros in the initial year and the IMF would provide additional money, perhaps 10 billion euros or more, but details on the IMF side remain unclear.

Financial markets, where Athens needs to roll over some 53 billion euros of sovereign debt this year with a big chunk before May 19, stayed nervous, with Greek 10-year bond yields rising to 7.3 percent on Friday.

That pushed the 10-year Greek/German government bond yield spread -- the premium investors demand to hold that debt over what they require to buy safer German bonds -- topping 439 basis points versus 415 at Thursday's settlement, Tradeweb data showed.

The euro retreated against the dollar, snapping a five-day winning streak.

An opinion poll released on Friday showed support for Prime Minister Papandreou had risen even if his voters were unhappy about austerity measures that include pay freezes and tax increases to try to stabilize the country's debt.

Two thirds of Greeks are dissatisfied with the government's performance but still overwhelmingly support it over the conservative opposition, while support for Papandreou himself rose to 68 percent, from 66 percent in March, the poll conducted by Public Issue for Skai TV showed.

Essentially, Greece and its potential rescuers are trying to make sure everything is in place for if and when emergency help has to be rolled out.

German Deputy Finance Minister Joerg Asmussen, whose country has expressed the greatest reluctance to rush to Greece's aid, said Berlin backed the discussions because a credible program should help Greece sort its problems out on its own.

But should the need arise we would -- in accordance with the agreed mechanism, so in the last stage a unanimous agreement of the Eurogroup, or even with the government leaders -- we would be in a position to act, he said.

LONGER TERM

Regarding longer-term plans, there was no detail as to what shape a more permanent anti-crisis mechanism might take or to how far the political will would stretch.

Commissioner Rehn said improvements to policy coordination should include reviews at euro zone level of draft budgets before they are approved in national parliaments, which would give a better picture of fiscal challenges in a timely fashion.

Germany's Asmussen distanced himself quickly from that idea.

It is quite clear that national budget authority has to remain unrestricted, although we are obviously subject to the rules of the (EU) Stability and Growth Pact, Assmussen told reporters in Madrid.

(Additional reporting Nigel Davies, Paul Carrel, Gavin Jones, Krista Hughes, Jan Strupczewski and James Mackenzie in Madrid, and Renee Maltezou in Athens; Writing by Brian Love; Editing by Dale Hudson)

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