German Chancellor Angela Merkel said she will not release funds for a Greek rescue until the country shows it has got a "sustainable" plan to cut its budget deficit.
She said a final decision take a "few days." Greek bonds dropped sharply today as Germany delayed approval of the €45 billion rescue plan that would be co-financed by the European Union and the International Monetary Fund (IMF).
Investors remain nervous about the plan and this can be seen from the extra yield that they are demanding to hold Greek 10-year debt over German bunds.
This rose 65 basis points to 625 basis points today – a 12-year high. Ms Merkel, speaking to reporters in Berlin, said there would be no decision on aid for Greece until the IMF works out a plan of cuts with Greek government.
She said this afternoon Germany would assist Greece only after it agrees to take "tough" measures for the next several years.
Greece is facing a deadline of May 19th when €8.5 billion of bonds mature. Finance ministers are seeking a swift resolution of the talks amid concern any delay may trigger a further sell-off and spread to other markets
French finance minister Christine Lagarde said today the possibility of restructuring Greek debt was "off the table."
Ms Lagarde told an audience at the Global Financial Forum that there was no chance that Greece would have to restructure its debt. She added that EU rules governing countries' financial behaviour would have to be more strictly enforced and suggested that Eurostat, a statistical office that keeps track of EU countries' finances, could possibly have more independence and a stronger oversight role
She said time was "of the essence" in setting the final terms for an aid package for Greece.
Greece's efforts to reassure investors that aid would arrive in time to avert the euro zone's first sovereign debt default have failed to convince investors and there was some evidence today that the €45 billion aid package may not be large enough.
German finance minister Wolfgang Schaeuble sought to ease investors' concerns by saying Berlin aimed to free up financial support for Greece before May 19th. "I reported Greece's needs to the parliamentary leaders and requested that we arrange the parliamentary debate and decision process so that we are in a position - like the others - to make the necessary loans available to Greece before May 19th, if needed," he said.
Germany may be able to finalise a law granting Greece financial aid on May 7th, and cautioned that any failure by Athens to refinance the euro bond on May 19th would have unforeseeable consequences, Mr Schaeuble added.
The backing of Germany, Europe's biggest economy, is vital for any aid but Berlin faces public opposition to a financial rescue and is taking a tough line over the terms.
In a possible complication, Germany's opposition Social Democrats said they would not back an accelerated parliamentary process to approve aid for Greece.
Saddled with huge debt and a swollen deficit, Greece bowed to pressure from markets on Friday and formally requested aid, triggering what could be the first financial rescue of a member of the 11-year-old euro zone.
Athens is in talks with the EU and IMF on additional steps to get the aid flowing in time to meet the May 19th deadline.
Athens has already announced billions of euros in budget cuts, including tax hikes and reductions in public sector wages, setting off violent protests and strikes.
Dockers at Greece's largest ports stopped work today to protest against moves to allow non-Greek cruise ships to moor at multiple Greek ports without hiring Greek crews.
Agencies
