European Commission reveals loan plans to rescue Greece

The European Commission has announced plans to come to the rescue of crisis-hit Greece and avert the growing risk of the collapse of the euro.

Amid signs Greece is planning to take its troubles to the International Monetary Fund, Commission president Jose Manuel Barroso last night proposed a solution to keep the problem within the EU “family”.

He said Brussels would be putting forward “an instrument for coordinated assistance” to Greece when EU leaders meet for a summit in Brussels next week.

He described the plan as “a system of coordinated bilateral loans” to Greece from other single currency member states.

There would be strict conditions – a reference to Greek pledges to meet deadlines for reducing its massive public deficit – and it would be compatible with a “no bail-out clause”, agreed when the single currency was first set up.

The move did not imply the “immediate activation” of a new scheme, went on Mr Barroso, adding: “Our objective is an instrument designed with the euro area, with conditions and management established by the euro area and its institutions.”

He warned: “We cannot prolong any further the current situation.”

The Commission president refused to speculate on whether the International Monetary Fund would make a financial contribution to any series of loans to Greece, but for many EU countries, the idea of a “European Monetary Fund” has already been mooted as an alternative which avoids the single currency club having to go cap-in-hand to an outside source for help.

Many EU leaders are determined to show the Greek economic crisis can be resolved within the euro-zone.

Mr Barroso, who is still in consultations with euro-zone countries on exactly how the new mechanism would work, added: “I urge EU leaders to agree on this instrument as soon as possible”.

Commission officials said there was no suggestion that non-single currency member states – such as the UK – would be expected to take part in any loan system.

Greek Prime Minister George Papandreou has been doing the rounds in Europe and beyond, talking up the state of the economy but preparing if necessary to seek an IMF bail-out.

Germany, meanwhile has been under pressure to step forward as the euro-zone’s wealthiest member, but a unilateral bail-out by Berlin for Athens would not go down well with Chancellor Angela Merkel’s voters.

The Commission is now making clear it wants to see an “in-house”, joint solution involving the euro-zone countries.

One senior official said: “For a year-and-a-half we have been having talks about what to do in the event of a serious problem affecting one or other of the single currency countries. That’s a long time. Now we are coming up with something, but the details are not there yet. We must discuss how such a programme of co-ordinated assistance would work and who would pay what.”

The official added: “What we are trying to achieve is solidarity and stability in the euro-zone, but we need the goodwill of the member states.”