A tax on euro zone banks and cheaper, longer-dated official loans are the least risky way to provide extra funding for debt-stricken Greece, a confidential paper drafted ahead of a European summit showed on Tuesday.
With financial markets on edge two days before leaders of the 17-nation currency area hold a crucial meeting, other options that could trigger a selective or outright Greek default with far-reaching consequences remain on the table, the paper obtained by Reuters showed.
The European currency is facing the biggest crisis of its 12-year existence, with contagion threatening major economies such as Italy and Spain after three small members - Greece, Ireland and Portugal - needed financial rescues.
French European affairs minister Jean Leonetti confirmed late on Monday that euro zone officials were eyeing a bank tax to raise extra money to help Greece. "It's one of the solutions we are looking at. It would have the advantage of not making us intervene directly with the banks and therefore potentially not triggering a default," he said.
A banking source and a government official said the inclusion of a tax proposal was aimed at pressuring banks and insurers into agreeing on an acceptable form of voluntary private sector involvement in supporting Greece.
Meanwhile, financial markets steadied on Tuesday but remained nervous. World stocks clawed back some losses, safe-haven German bonds fell on profit-taking and the euro regained some ground against the dollar.