'Serious difficulties'

A French official, speaking on condition of anonymity, said: "There is agreement on the idea of a European framework.

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"This European framework will be made up of co-ordinated bilateral loans.

"This European framework would be complemented by IMF loans with clear mention of the fact that the financing would mainly be European."

The money would be used only if there were "very serious difficulties and there was no other solution," he said.

A German official said eurozone states would have to agree to activate the plan, giving Berlin a veto.

Germany, Europe's biggest economy, now faces public opposition to the deal ahead of a regional election in May and any financial assistance may face a legal challenge at home.

Greece has already taken a string of austerity measures, prompting widespread and largescale domestic strikes and protests.

Ballooning deficit

Athens most recent plans saw an additional $6.5bn in savings through public sector salary cuts, pension freezes and consumer tax hikes to deal with its ballooning deficit.

The latest cutbacks, added to a previous $15.24bn of austerity measures, seek to reduce the country's budget deficit from 12.7 per cent of annual output to 8.7 per cent this year.

The long-term target is to bring overspending below the EU ceiling of 3 per cent of GDP in 2012.

EU leaders are concerned debt-servicing problems could also hit other countries in the eurozone including Portugal,Spain and Italy.

Wrangling over the Greek issue has also threatened cohesion across the eurozone and driven down the value of the euro currency, used by 16 member states including Greece.

World stock markets rallied on news of the negotiations.