Greek must back reform to avoid default: EU's Rehn

Greece will immediately default if its parliament does not support the government's economic austerity proposals this week, European Economics and Monetary Affairs Commissioner Olli Rehn said on Tuesday.

"The only way to avoid immediate default is for parliament to endorse the revised economic programme ... They must be approved if the next tranche of financial assistance is to be released," Rehn said in a statement.

"To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default," he said.

Rehn's words appeared to be carefully chosen -- he did not specifically rule out a contingency plan should Greek parliamentarians refuse to come into line, but said there was "no Plan B to avoid default".

EU leaders and other senior officials have called in recent days for euro zone and broader EU member states to ensure their banks are well capitalised and are ready to withstand any problems, including potential contagion from Greece.

Euro zone sources told Reuters on Monday that planning had been going on for several weeks to ensure Greece received liquidity, with a major aim being to head off any contagion spreading to Ireland, Portugal and Spain and to Europe's banking system.

The plan is distinct from a French proposal for private sector involvement in a second Greek bailout programme and is being discussed despite European Commission President Jose Manuel Barroso and other senior EU officials repeatedly saying that "there is no Plan B for Greece".

Rehn said Greece faced a critical juncture this week, with both its future and that of financial stability in Europe at stake.

"The European Union continues to be ready to support Greece. But Europe can only help Greece if Greece helps itself," he said.

Rehn said it was vital for Greece to a broader consensus on the reforms needed to restore growth, as well as fighting tax evasion and encouraging real entrepreneurship.