BERLIN (Reuters) - Greece will receive much more aid than initially expected, German lawmakers said on Wednesday after a briefing with the International Monetary Fund, reviving markets that had been spooked by fears of a Greek debt default.
They said IMF chief Dominique Strauss-Kahn told policy makers the aid package for debt-crippled Greece would be worth 100-120 billion euros ($133-160 billion) over three years, against the 45 billion pledged to date by the IMF and euro zone.
Germany in particular has been dragging its feet over moves to prop up crumbling Greek finances, and it was not immediately clear how governments planned to raise the additional money for Athens, or whether they could secure support for the move.
After meeting the German politicians, Strauss-Kahn declined to comment when asked if the Greek aid package could reach 120 billion euros.
However financial markets, which have fallen precipitously this week on fears of a Greek default and contagion through the EU fringes, immediately bounced on word of increased aid.
The 10-year Greek/German government bond yield spread narrowed to 828 basis points after earlier peaking at more than 1,000 bps , while the euro, which hit a one-year low against the dollar on Wednesday, rose slightly.
Juergen Trittin, a parliamentary leader for the Greens, told reporters on Wednesday that Strauss-Kahn had told German lawmakers that Greece should be taken off the market de facto for three years, giving it time to sort out its finances.
Underlining market concerns of a possible default, the cost of insuring Greek debt rose above Venezuela's, previously the highest of the 70 sovereigns tracked by CMA, according to CMA Datavision.
European Commission officials dismissed any talk of a restructuring of Greece's debt mountain, which totalled 115 percent of gross domestic product last year and is projected to push even higher as Athens struggles to tame its huge deficit.
EU leaders also rushed to the barricades, promising to protect Greece and dismissing talk that other countries, such as Portugal, could be sucked into the debt vortex.
"The European Union, the euro zone states are going to assume their full responsibility regarding Greece," French Prime Minister Francois Fillon told the French parliament, dismissing concerns that Germany did not want to help Athens.
"What might seem as hesitation on the part of the German government will vanish today," he added.
Rating agency Standard and Poor's slashed Greek debt to junk status on Tuesday and also downgraded Portugal, raising concerns the crisis may engulf other heavily indebted EU states.
European Central Bank Executive Board member Juergen Stark said EU governments must move rapidly to put their finances in order, adding that current fiscal policies were not sustainable.
"The onus is now on governments to ensure that the crisis that initially affected the financial sector, and subsequently the real economy, does not lead to a full-blown sovereign debt crisis," Stark said.
"Averting it will require very ambitious and credible fiscal consolidation efforts. In fact, substantially stronger consolidation efforts than those conceived so far."
European Union President Herman Van Rompuy said he would convene a summit of euro zone countries around May 10 and insisted there would be no restructuring of Greek debt.
A Reuters poll on Wednesday showed that financial analysts saw a roughly one in three chance of Greece restructuring its debt some time in the next five years, and an approximately one in 10 chance of it leaving the euro zone.
The Germans are particularly angry about Greece because it has misled its EU partners in recent years about the gravity of its deficit and has failed to implement the sort of tough reforms that Germany itself has undergone.
Chancellor Angela Merkel's party risks defeat in a regional election on May 9 and has faced fierce pressure to cast Greece adrift, despite warnings that could lead to market mayhem.
Greece's securities regulator banned short-selling in shares on the Athens bourse until June 28 after investors responding to the deepening debt crisis ditched Greek assets.
S&P cut its rating of Greek government debt by a full three notches to BB-plus, the first level of speculative status. The outlook is negative, meaning it could cut the rating again.
The downgrade put Greece below Kazakhstan, Hungary and Iceland, the last of which rocked global markets when its main banks imploded at the start of the global financial crisis.
In Athens on Tuesday, about 1,500 private and public sector workers, students and anarchists marched to parliament chanting "Out with the IMF and the European Union" in protest against austerity measures that could accompany the bailout.
Some 60.9 percent of Greeks disapprove of their government's decision to ask for financial aid, according to an opinion poll released by Greek Public Opinion for Mega TV.
(Writing by Crispian Balmer; editing by Dominic Evans)