European Commission urges eurozone loans for Greece

BRUSSELS, Belgium - The European Commission urged Germany and other eurozone governments yesterday to provide a package of government-to-government loans to ease Greece's financial plight and end weeks of financial turmoil and speculation.

European Commission President Jose Manuel Barroso said European aid was necessary because "we cannot prolong any further the current situation." He spoke of "coordinated bilateral loans" that would not have to be paid out immediately.

Even as a standby gesture, Barroso said, aid from Greece's partners would show financial markets that EU nations are united to defend their shared currency, the euro, and the stability of the 16-nation zone.

Speaking to reporters, Barroso urged EU leaders to agree on "coordinated bilateral loans" at a summit in Brussels.

He did not elaborate on loan or participation conditions or other details.

In Athens, Greek government spokesman George Petalotis called Barroso's appeal a "positive development." "We would like a clear declaration of this so that we can borrow money at a reasonable rate," Petalotis said.

EU sources have estimated that Greece needs a financial injection of about $27 billion.

Barroso's proposal came as Germany and the EU head office were at loggerheads after German officials said they could not rule out financial aid for Greece from the International Monetary Fund.

EU officials prefer to resolve the Greek financial crisis through European aid. But Barroso said he "did not want to speculate if there will be a financial contribution from the IMF."

Germany - Europe's biggest economy - has been reluctant to pledge direct financial aid because German public opinion takes a dim view of the shoddy statistics-keeping that has long hidden the true size of Greek deficits and debts.

On Thursday, Greece warned it would be forced to turn to the IMF for help - which would be an embarrassment for the single-currency bloc - if the EU failed to extend any concrete support package to help reduce its market borrowing rates.

A European or IMF backstop would be aimed at reassuring markets and bringing down the high interest rates demanded from Greece as it seeks to borrow about $73 billion this year to plug its budget gap.

"We haven't ruled out IMF financial assistance," Ulrich Wilhelm, a spokesman for German Chancellor Angela Merkel, told reporters.

A Greek default would be a serious blow to the euro, but Germany in particular has resisted putting up money to bail Greece out after years of that nation's overspending.

Greek Prime Minister George Papandreou has said he expects EU leaders to decide at a meeting next week on a blueprint of aid from the 16 eurozone countries.

"Our clear priority is for Greece's problems to be solved within the framework of the eurozone," he added. "That is very clear."