Euro zone finance ministers unanimously approved a detailed 30 billion euro ($40.5 billion) emergency aid mechanism for debt-plagued Greece on Sunday but stressed it had not requested that the plan be activated now.

In a rare weekend telephone conference, ministers from the 16 nations that share the single European currency backed a plan for Athens to borrow from euro zone governments and the IMF at well below current market rates if market funding dries up.

Greece would receive 30 billion euros in the first year from all euro zone countries in bilateral loans coordinated by the European Commission and paid via the European Central Bank, the head of the Eurogroup of finance ministers said.

If the mechanism had to be activated, it would not be a violation of the no-bailout clause (in the European Union treaty) since the loans are repayable and contain no element of subsidy, Eurogroup chairman Jean-Claude Juncker told a news conference in Brussels after the meeting.

European Economic and Monetary Affairs Commissioner Olli Rehn said the euro zone loans would carry an interest rate of about 5 percent -- well below current market rates of over 7 percent.

The size of the International Monetary Fund's contribution to any package was not disclosed but it would come on top of the euro zone amount. Euro zone countries would pay proportionately to their share in the ECB's capital. Talks on coordination with the IMF will begin on Monday, Rehn said.

The agreement was urgently awaited because Athens is due to auction short-term debt on Tuesday after investors last week sent Greek borrowing costs spiraling due to fears of a possible default and doubts over the EU safety net.

Greek Prime Minister George Papandreou made clear in a newspaper interview that detailing the rescue plan was a last ditch effort to deter speculation against his country.

The question remains whether this mechanism will convince markets just like a gun on the table. If it does not convince them, it is a mechanism that it is there to be used, he told the Sunday edition of To Vima.

It was the most explicit mention a Greek leader has made of the possibility of requesting aid. Previously, Papandreou and Finance Minister George Papaconstantinou have insisted Greece is not asking and will not ask for assistance.

The country's aim is to continue to borrow smoothly from the markets under better terms than the current ones, the finance minister told Sunday's Realnews newspaper.


Skepticism over Greece's ability to manage its 300 billion euro ($401.2 billion) debt pile, more than its 240 billion euro annual economic output, grew last week when investors dumped Greek stocks and bonds and ratings agency Fitch downgraded Athens by two notches.

Fitch dropped Greece's credit rating to BBB-, the lowest investment grade just above junk, saying a deepening recession and rising debt service costs would make it even harder for Athens to meet its budget deficit reduction target.

The government has imposed tough austerity measures to meet a pledge to cut the public deficit by four percentage points of gross domestic product to 8.7 percent this year.

Juncker said data provided by Greece showed the fiscal consolidation program were encouraging and showed Athens was on track to reach this year's target.

A euro zone finance ministry official said Sunday's teleconference was not about deciding to give Greece aid, but about technical preparations in case a rescue was needed.

The fire brigade is filling up its water tanks, and is ready to act, but it won't be driving out of the station until there is a call for help. That call for help hasn't come yet, the official said.

Strong public opposition to any bailout for Greece in Germany, Europe's biggest economy and main paymaster, has fueled market doubts about the availability of any rescue, especially since the plan leaves Berlin a veto.

Germany, the Netherlands and Austria had argued that any emergency bilateral loans to Greece should be at current market rates, which rose above 7 percent last week, to avoid moral hazard by rewarding profligate countries.

However, euro zone officials worked out a formula on Friday that would provide 3-year loans for about 5 percent, based on the IMF's pricing formula with some adjustments, Rehn said.

The euro, which has been dragged down by concerns over Greece and possible contagion with other weak Mediterranean euro zone economies, rebounded slightly on news of Friday's technical agreement among deputy finance ministers and central bankers.

The risk premium that investors charge to hold Greek debt rather than benchmark 10-year German bonds narrowed to just over 400 basis points after hitting a record 454 on Thursday.

However, any durable reduction in the spread will depend on the credibility of the EU rescue plan and markets' assessment of how likely it is to be invoked.

Greece needs to borrow about 11 billion euros by the end of May to refinance maturing debt and interest charges. Its overall 2010 borrowing requirement is 53 billion euros.

(additional reporting by Michele Kambas in Nicosia and Ingrid Melander in Athens; writing by Paul Taylor; editing by Simon Cameron-Moore)