€20bn needed to save Greece from collapse

The European Commission warned an extra 20 billion euros could be needed to revive Greek banks after a proposed maturity extension of Greek government bonds.

It comes as  Eurozone ministers failed on Tuesday to reach an agreement on how private holders of Greek debt should share the costs of a new bailout.

A German-inspired plan suggests a further cash reserve may be needed by the Greek government if the European Central Bank refuses to accept its downgraded bonds as collateral.

The lack of a deal pushed bond yields of Greece to 17.9%, their highest level since the introduction of the euro in 1999, and Moody's  placed France's top three banks on review for a possible downgrade, citing the banks' exposure to Greek debt.

Protests have broken out in Greece as a 24-hour anti-austerity strike by the country's largest labour unions crippled public services.

It comes as the Socialist government was to begin a legislative battle to push through last-ditch cost-cutting reforms that will extend beyond its own term in office.

But former IMF chief economist Raghuram Rajan said restructuring of Greece's debt looked increasingly probable as Athens lacked the political will to carry out widespread privatizations of state assets and budget tightening.

"If the debt restructuring happens in a way that banks and markets are prepared for, even if not publicly but at least privately, it is very well containable," he said.

"But a restructuring which happens because the dialogue breaks down will be more complicated because that would suggest that there will be implications for Ireland, for Portugal and so on, and that could be more problematic down the line."