Euro zone countries have decided in principle to help debt-stricken Greece, a senior German ruling coalition source said on Tuesday.
"The decision on help for Greece has been taken in principle within the euro zone," said the source.
Various options were being considered and no decision had yet been taken but the most likely possibility was to offer Greece "bilateral help," said the source.
European and U.S. markets rallied, with Greece leading the charge, on hopes that EU officials will provide the euro zone's most heavily indebted economies with some form of support.
News that European Central Bank President Jean-Claude Trichet cut short a trip in Australia to attend an EU summit on Thursday, where heads of state and government will address fiscal problems, bolstered investor sentiment.
Greece's government has vowed wage and pension reform in an effort to gain credibility in its plan to drive down its debt load.
However, nationwide strikes were planned for Wednesday, possibly undercutting any confidence in the country's plan.
"It would appear that these countries still don't get it, and this starkly highlights the problems ahead for the politicians as they seek to find a resolution to a problem that threatens to undermine the entire concept of the single currency," said Michael Hewson, analyst at CMC Markets.
He said a bailout would be very problematic, since that would urge other heavily-indebted countries to seek the same treatment — most governments piled on debt in the wake of the financial crisis.
Some experts believe the European Central Bank may come up with a form of support which would not require a bailout, such as guarantees for debt.
Alternatively, big economies like Germany and France could offer support in some form.
The fact that Trichet will attend the summit on Thursday "has increased speculation that the EU may be on the verge of providing some support for its high yielding economies," said Stuart Bennett, analyst at Calyon.
High yields are a symptom of falling bond prices and increased
perception of risk.
However, worries that confidence in Greece's debt will erode and spread to other countries with weak public finances — such as Portugal or Spain — has kept investors on edge.
© 2022 Thomson/Reuters. All rights reserved.