Discussions are underway for the European Union and the International Monetary Fund to grant Greece a fresh loan to bridge funding gaps in 2012 and possibly also 2013, said three sources familiar with the matter.
EU, IMF and Greek government officials have come to realize that Greece will need another injection of financial aid to cover financing needs, these sources said. The deal is expected to be concluded this month, with the loan volume seen at about EUR30 billion for each year.
"There is no other option but a new loan for Greece," said one senior euro-zone government official who is directly involved in the talks. This person said it was still open whether the new loan would cover one or two years.
Also still undecided as of early Wednesday was a proposal, backed earlier by Germany, to ask for private investors to voluntarily agree to an extension of the life of Greek bonds maturing over the next few years, according to these sources.
German officials have been considering dropping their push for an early rescheduling of Greek bonds, which would involve arduous negotiations with creditor banks, to help speed through a new aid package for Athens.
The European Central Bank has strongly opposed that plan as posing dangers to the financial system. Greek officials fear that the move could cripple Greek banks if their government bonds subsequently were declared unsuitable collateral for ECB financing.
The rescheduling proposal foresaw asking banks to voluntarily agree to extending the maturities of bonds falling due in 2012 through 2014 for three years, according to an IMF official.
That would have cut fresh funding needs by around EUR10 billion each year with the another EUR20 billion coming in the form of fresh loans, said an IMF official.
"That would satisfy German demands that private bond holders should pay part of the cost," he added.
But the euro-zone government official said that any bond reprofiling plan can't go forward without approval from the ECB, which he said remains "vehemently" opposed.
"It is a very controversial issue and I don't think there is enough time to reach an agreement by the end of June," the government official said.
The urgency for a new loan loomed as Greece appeared set to miss at least some of its budget targets under the EUR110 billion loan package agreed last year. That loan stipulated that the Greek government must show solid financing for the next 12 months before receiving its next installment at the end of June.
If Greece is unable to show proof of funding, a decision on how to plug the gap is needed before the end of this month. EU and IMF officials will wrap up their latest review of Greek budget accounting on Friday, with financial markets worried about a negative result.
Also this week, representatives of EU finance ministries are to meet in Vienna late Wednesday to hash out details, including what extra measures the EU will require from Athens in exchange for the new loan.
The European Commission declined to comment on details of discussions with Greece this week.
"We are ready to discuss further ways to support Greece, provided of course the Greek government fully implement the program," said a spokesman for EU economic and monetary affairs commissioner Olli Rehn.
Greece is being asked to crack down on public-sector spending as a condition for any new financing.
Steps would include the creation of a separate privatization agency to speed plans to sell-off EUR50 billion in state-owned properties by 2015. This new entity would be run by Greek officials, but could enlist foreign experts in privatization to help run the program.
Talks also have focused on imposing stiff limits on hiring state workers and slowing the pace of pay increases in the public sector. State-workers also could see their one-time cash-payment upon retirement cut by 10%. Greece will retain control of its tax collection mechanism, these sources said.