EU faces high-stakes ultimatum on aid for Greece

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Greece has made what amounts to an ultimatum to the European Union to come up with a clear offer of standby loans next week or face the embarrassment of Athens asking the International Monetary Fund for help.

Greece has long held out the prospect of seeking IMF help to put pressure on the EU, but Prime Minister George Papandreou raised the stakes on Thursday by calling for a firm pledge of financial support at an EU summit in Brussels on March 25-26.

His appeal is designed to force EU leaders, and particularly German Chancellor Angela Merkel, to rally behind Greece after EU finance ministers offered only a vague plan for a standby safety net this week. But success is far from certain for Athens.

"The position of the German government will be decisive. Right now it looks like they will really not reach agreement at European level on help for Greece," said Cinzia Alcidi of the Centre for European Policy Studies think tank.

"This would be harmful in terms of the credibility of the euro and it would be politically embarrassing. This is the first big test for the euro and it will look bad if the Europeans can't find a way out of trouble on their own."

Greece's threat of turning to the IMF is a potent one. Other countries in the euro zone are horrified by the prospect because it could be seen as a sign of weakness.

None of 16 countries using the euro has needed a bailout since the single currency was created a decade ago, and EU leaders are still hoping Greece will get by on its own after announcing austerity measures to cut its deficit.

"Many people said when they created the euro that they would face problems. There's a fear that these people will be able to say they have been proved right if the IMF is called in," said Zsolt Darvas of the Bruegel think tank in Brussels.