FEBRUARY 28, 2010, 10:57 A.M. ET.

Greece Bailout Plan Takes Shape

By CARRICK MOLLENKAMP, COSTAS PARIS and ALESSANDRA GALLONI
A plan led by Germany and France to bail out Greece with aid of as much as €30 billion has begun to take shape, Greek officials and other people familiar with the matter say, but the timing and terms of any rescue remained unclear.

Greek officials hope to seal a deal by Friday, when Greek Prime Minister George Papandreou meets in Berlin with German Chancellor Angela Merkel, but a senior German official insisted that a bailout was not imminent. Berlin is studying options should a bailout prove necessary at a later stage, the official said. Greece is keen to move fast in order to remove investor doubts about its solvency.

European politicians have been reluctant to bail out Greece and want Athens to make deeper cuts to its budget than it has so far agreed. Athens is expected to provide further details of its austerity program this week and will likely announce another €4 billion of spending cuts and tax increases this Wednesday following a visit by European Union Monetary Affairs Commissioner Olli Rehn on Monday, according to people familiar with the matter. German and French officials say there will be no rescue until Greece meets the fiscal demands they have made.

The rescue under consideration would involve the sale of debt to French and German entities, likely state-owned banks, as well as to bond investors, Greek government and banking officials said. The sale roughly would be split between the states and debt investors.

"I have no doubts that Greece will succeed in refinancing itself through ways that we are exploring at the moment," French Finance Minister Christine Lagarde said on French radio Europe 1 on Sunday morning. Ms. Lagarde added that the solutions being considered could include "either private partners, or public partners — or both."

An official close to the French government added: "We are ready to help Greece and to consider all appropriate measures depending on their acceptability to our euro-zone partners, notably Germany because we started this process bilaterally and we are keen to continue in the same way."

Though officials in France and Germany may want time to deliberate, there is an increasing sense that the financial markets want to see a resolution. Debt markets, in particular, have been volatile in recent weeks amid the uncertainty over Greece's course and whether its crisis could spread to other vulnerable countries on the euro zone periphery, such as Spain and Portugal..

The use of state-owned financial institutions might enable the German and French governments to get around regulations that could prohibit governments from owning the debt of other nations, a person familiar with the situation said. In Germany, KfW might be one institution used to buy the Greek debt.

A debt sale potentially could dovetail with efforts by Greece and the European Union to agree on the structure of a Greek effort to cut budget deficits. The two sides, as of Friday, were at odds over whether a plan to cut spending and boost taxes would reduce Greece's budget deficit to a target of at or below 9% of gross domestic product this year.

A senior Greek official said Friday the country is working on an additional level of levies to meet the EU target. But it may not be enough to convince German officials to back the plan. The strong political obstacles in Germany to provide aid for Greece, including outright opposition from many lawmakers in the ruling coalition, mean aid would be a last resort, government officials say.

A German official said Berlin won't send German taxpayer money south "just as a reward for some new announcements," referring to Greece's expected additional budget cuts.

The debt sale by Greece under consideration would be between €20 billion and €30 billion ($27 billion and $41 billion). That money is needed so that the country can pay off maturing debt this spring.

Greece needs to borrow around €54 billion this year. It so far has raised €13 billion. About €22 billion of bonds mature in March and April.

Greece had been considering a debt sale of between €3 billion and €5 billion with hopes of selling the debt within the next week. Athens is still planning to pursue that sale, a Greek official said. A final decision is expected within several days.

Even if the German and French entities agreed to buy half of a new debt sale totaling €30 billion, that still would leave a massive amount for public bond investors to buy.

In January, Greece sold five-year bonds totaling €8 billion. The value of the bond fell within days. That could hurt prospects of a new and much larger sale.

But the person familiar with the debt sale said the hope is that a high enough yield — and the fact that such a large sale would be seen as enough to truly fix Greece's problems — would attract investors.

—Marcus Walker contributed to this article.
Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com, Costas Paris at costas.paris@dowjones.com and Alessandra Galloni at alessandra.galloni@wsj.com

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