Euro zone finance ministers are likely to back a bailout for Portugal on Monday and tell Greece it must deliver on agreed fiscal and privatization targets if it wants new emergency financing next year.
Greece denied reports on Tuesday it was discussing a new 60 billion euro ($84 billion) bailout with international lenders and its borrowing costs rose amid fears it may have to restructure its debt without further EU help.
A euro zone source involved in the preparation of the monthly meeting of ministers from the 17-member single currency area said a discussion of new aid for Greece, on top of the already agreed 110-billion-euro bilateral loans from the euro zone and the IMF was premature.
But the source said the euro zone might consider more aid, once Greece delivered on already-made promises, although this may require additional austerity steps.
There is no question about a new bailout package for Greece -- it is about implementing what has been decided and announced, the euro zone source said.
They need to show to the EU and the IMF they can deliver on the existing program. To show that, there probably has to be an announcement of additional measures, the source said.
The source stressed Athens had to improve the credibility of its privatization program, which envisages revenues to state coffers of up to 50 billion euros by 2015.
We want a credible plan, a timetable, a list of assets, and procedure on how they are going to do that, the source said.
If it can be demonstrated in a credible way that it is a credible program, it would go a long way to allay the fears of markets about debt sustainability, and, on the political level, that they talk a good game but what it comes to playing it they don't, the source said.
GREECE MUST DELIVER ON TARGETS
Should it happen that Greece would not recover full access to the markets by end of the current program's funding period, and should we be convinced by Greek action on the two counts I mentioned, then it cannot be excluded that further financing is in the pipeline, the euro zone source said.
The source said that despite the fiscal slippages resulting from a deeper-than-expected recession and from statistics revisions, Greece had to stick to its original fiscal targets.
They have to stick to the original plan. We can discuss the exact way to get there, but the end goal -- going with the budget deficit below 3 percent of GDP within a specified deadline -- is an unmovable target, the source said.
If they are willing to help themselves, then we do not exclude that we will be willing to help them a little bit more, if that is what is needed, the source said.
We want to have credible pledges very soon, in a matter of weeks. June sounds about right, the source said.
A second euro zone source said it expected Greece would announce a new push to deliver on the austerity and reform programs in the coming days.
The first source also dismissed speculation about further interest rate reductions on Greek loans after euro zone leaders decided to cut Greek borrowing costs on the emergency package by 100 basis points to about 4.2 percent.
I have no information on any discussion on that taking place in any forum, the first source said.
PORTUGAL AND IRELAND
The source said that finance ministers were also unlikely to discuss on Monday lowering the interest rate on the euro zone bailout loans for Ireland, which is keen to secure lower funding costs as well.
Ireland did not get more favorable funding terms because it resisted French and German pressure at a summit in March to raise its low corporate income tax.
I don't think it will be discussed on Monday -- that was a bargain struck at the level of heads of state and the final deal will have to be struck there as well, the source said.
Euro zone finance ministers, or the Eurogroup, are expected to approve the 78-billion-euro Portuguese bailout plan on Monday.
But their backing hinges on the position of Finland, where parliament has the right to approve Finland's participation in euro zone bailout deals and where euro skeptic parties have gained much ground after April elections.
Negotiations to muster a parliamentary majority to support the Portuguese package are now under way but a vote on whether the Finnish parliament would support the Portuguese bailout and on what conditions was delayed to Friday from Wednesday.
(Editing by Louise Ireland)