At a meeting in Brussels that was overshadowed by the weekend arrest of International Monetary Fund (IMF) chief Dominique Strauss-Kahn on rape charges, the ministers also approved a bailout for Portugal and backed Italian Mario Draghi to become the next president of the European Central Bank.
Strauss-Kahn, who has run the Washington-based IMF since 2007, had been expected to attend the monthly meeting of finance ministers from the 17-nation currency bloc to discuss their widening debt crisis.
But instead he was forced to appear in a Manhattan court, where prosecutors described in graphic detail his alleged attack on a chambermaid in a midtown Manhattan hotel on Saturday.
Through his lawyers, Strauss-Kahn has denied the charges but the judge refused to grant him bail after the prosecution warned he might try to flee the country. He is to be transferred to New York's notorious Rikers Island jail pending his next court appearance on Friday.
The events across the Atlantic cast a cloud over the meeting, where ministers wrestled with a new plan for Greece, which is struggling to meet the targets linked to its 110 billion euro ($155 billion) EU/IMF rescue, sealed one year ago.
Many economists believe Greece will become the first western European country to restructure its debt since post-war Germany in 1948, but policymakers have ruled out imposing painful losses, or "haircuts," on the country's private creditors before 2013.
"REPROFILING"
Jean-Claude Juncker of Luxembourg, who chairs euro zone finance minister meetings, left the door open however to a "reprofiling" of Greece's debt under which investors would be encouraged to agree to an extension of the maturities of the debt they hold.
"I have to repeat that a large restructuring is no option. Nobody was mentioning tonight the need of having a large restructuring," Juncker said.
"I wouldn't exclude in a definite way a kind of reprofiling," he added. "It's not reprofiling or nothing, it's measures and measures and measures and then maybe reprofiling."
It is unclear how policymakers could convince Greek debt holders to agree to a voluntary "soft restructuring" of this kind. Even if they were successful, this step would only buy Athens more time, not reduce its sovereign debt burden of about 330 billion euros.
Juncker described the situation in Greece as "extremely difficult" but held out hope that its problems could be brought under control if Athens stepped up reforms to meet its 2011 fiscal goals and moved swiftly to sell off state assets.
In another sign of the rising pressure on European governments to broaden the burden of their bailouts from taxpayers to the banks that have lent to so-called peripheral euro zone countries, the ministers backed a 78 billion euro bailout of Portugal but insisted Lisbon seek agreement from private bondholders to maintain their exposure to its debt.
Finland had insisted on some form of private sector involvement to ensure its parliament, which includes euroskeptic parties, will approve the bailout.
It was the first time a euro zone country has explicitly sought voluntary pledges from private creditors not to sell down their debt holdings.
Lisbon cannot force debt holders to maintain their exposure so it is unclear whether the pledge will have more than a symbolic impact. Portugal is the third euro zone country to secure a rescue package after Greece and Ireland last year.
DRAGHI SLAM DUNK
Backing for Italian central bank chief Mario Draghi to replace Jean-Claude Trichet at the helm of the ECB when the Frenchman's term expires at the end of October had been widely expected after German Chancellor Angela Merkel threw her weight behind him last week.
Draghi takes over the ECB at a crucial time, with the sovereign debt crisis raging and after the Frankfurt-based bank raised its benchmark interest rate for the first time in nearly three years in April.
After the surprise withdrawal of Germany's Axel Weber from the ECB race in February, Draghi quickly emerged as the favorite and Europe avoided a messy fight over the nomination.
Should Strauss-Kahn resign or be dismissed from his post at the IMF, the battle over who should succeed him could be much more intense.
Europe has had a long-standing claim to the Fund's top position and would probably be keen to bring in someone who, like Strauss-Kahn, will be committed to helping the bloc fight its sovereign debt crisis. French Finance Minister Christine Lagarde is seen as the top European candidate.
But a recent power shift at the IMF toward emerging nations means that countries such as China, India and Brazil could press for a new chief from a developing nation.
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