Nicolas Sarkozy, the president of France, and Angela Merkel, the chancellor of Germany, have agreed a deal for support to Greece, according to French diplomats.

They said the deal would be presented to the leaders of the other EU nations during the European Council meeting that began in Brussels today.

The diplomats said a meeting of leaders from the Eurogroup – the 16 eurozone countries – would be called this evening to go over the plan.

The deal includes a role for the International Monetary Fund (IMF), a key demand pushed by Merkel, diplomats said.

The compromise includes both “voluntary” bilateral loans given by the EU’s member states and loans from the IMF. French diplomats say that Germany has agreed to push the EU for new economic governance rules, which would see stronger and possibly binding rules for the Eurogroup.

Diplomats said Merkel also pushed for tighter rules of the eurozone’s stability and growth pact, rules that underpin the euro currency.

Still to be worked out is how many EU countries will offer loans and how much and under what conditions.

Merkel had been opposed to an offer of bilateral aid from the EU alone.

Fact File

Eurozone members’ statement on financial aid package for Greece

“The Greek government has not requested any financial support. Consequently, no decision has been taken today to activate the…mechanism.

“As a package involving substantial International Monetary Fund (IMF) financing and a majority of European financing, euro area member states are ready to contribute to co-ordinated bilateral loans.

“This mechanism, complementing IMF financing, has to be considered ultima ratio, meaning in particular that market financing is insufficient.

“Any disbursement on the bilateral loans would be decided by the euro area member states by unanimity subject to strong conditionality.

“We expect member states to participate on the basis of  their respective European Central Bank capital key.

“The objective of this mechanism will not be to provide financing at average euro area interest rates, but to set incentives to return to market financing as soon as possible by risk adequate pricing.

“Interest rates will be non-concessional, ie not contain any subsidy element.”

“We…promote a strong co-ordination of economies polices in Europe. We consider that the European Council should become the economic governance of the European Union and we propose to increase its role in economic co-ordination.

“For the future, surveillance of economic and budgetary risks and the instruments for their prevention, including the excessive deficit procedure, must be strengthened.

“We need a robust framework for crisis resolution respecting the principle of member states’ own budgetary responsibility.

“We ask the president of the European Council to establish, in co-operation with the Commission, a task force with representatives of member states, the Commission and the ECB, to present to the Council, before the end of the year, the measures needed to reach this aim, exploring all options to reinforce the legal framework.”

Socialist plan

Earlier today, socialist leaders attending the summit proposed a ‘solidarity’ plan to help Greece.

George Papandreou, Greece’s prime minister, and Poul Nyrup Rasmussen, the president of the Party of European Socialists, announced a plan backed by the EU’s centre-left government leaders to extend an existing EU loan plan to Greece.

“It is a clear solution and a simple one,” Papandreou said. “It shows that if there is a will, there is a way.”

The plan involves changing rules so that eurozone nations can tap into an existing €50 billion fund, which has been used to help Hungary, Latvia and Romania in the past, to help Greece and others if needed.

The EU fund, which offers emergency credit to countries in financial difficulties, gets its money from bond markets, but passes them on as loans at lower rates to EU countries in need.

“We have a solution notably for Greece but also for other countries being attacked by financial market speculation,” Nyrup Rasmussen said. He said agreeing to the fund would not need treaty changes nor would it cost EU countries.

“I can tell all German taxpayers this will not cost you one euro,” Nyrup Rasmussen said. “It can be done very quickly. It is just about political will.”

Joint plan

Many leaders are open to a joint European and IMF aid plan, said Dutch Prime Minister Jan Peter Balkenende.

“More and more countries are talking about a combination of the role for the IMF and European countries, so I really hope it will go in that direction,” he said.

“The IMF has expertise, they know how to handle this situation, they use strict conditionality and I think that is an advantage.”

European Commission President José Manuel Barroso warned the EU leaders that not getting a deal at the summit on an aid plan would threaten the stability of the euro, which is already under increased pressure after the downgrading of Portugal’s credit rating earlier this week.

“Europe has taken too long to respond and I hope this time there will be a political commitment that will reply to all of the doubts and all the excitement,” said José Socrates, prime minister of Portugal.

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