ECB's Asmussen sees Greek aid deal covering two years

European Central Bank policymaker Joerg Asmussen said on Sunday the euro zone should agree next week on two years of funding for Greece and leave further help to be decided later, a view likely to irk the IMF, which wants a permanent solution.

"We should next week settle the financing for the years 2013 and 2014, but you have to be honest and say we do not really expect the country to have access to markets in 2015 and 2016; that means a follow-up program would be necessary," Asmussen told German broadcaster ZDF.

A two-year deal would postpone a longer-term solution to the Greek debt crisis until after a September 2013 German general election, when it might be politically easier for Germany, the EU's paymaster, to take tough decisions.

The International Monetary Fund (IMF), however, is unlikely to welcome further delay.

Euro zone finance ministers and IMF Managing Director Christine Lagarde meet on Tuesday to try to agree on how to make Greece's debt manageable.

Lagarde told Reuters late on Saturday that she would push for a permanent solution to Greece's debts to avoid prolonged uncertainty and further damage to the Greek economy.

IMF officials have argued that some writedown of Greek debt held by euro zone governments is necessary to make Greece solvent, but Germany, the biggest contributor to the bloc's bailout funds, has repeatedly rejected the idea of taking a loss on such holdings, saying it would be illegal.

Among ideas under consideration to plug the funding gap are further reducing the interest rate and extending the maturity of euro zone loans to Greece, an interest-payment holiday and bringing forward loan tranches due at the end of the program, according to euro zone sources.

Asmussen told ZDF the problem was that loans alone did not help as they raised the long-term debt.

"We must look for solutions which do not at the same time raise the debt level of the country. That could, for example, be buying back debt or reducing the interest on the outstanding credit," said Asmussen.

In her interview with Reuters, Lagarde said she always tried to be constructive but was driven by two objectives:

"To build and approve a program for Greece that is solid, that is convincing today, that will be sustainable tomorrow, that is rooted in reality and not in wishful thinking.

"The second objective is to maintain the integrity, credibility and quality of advice that we are giving, not for the Fund itself, which obviously is a concern of mine, but to lend that to the Europeans, because that is what they are interested in."

PUBLIC DISAGREEMENT

In an unusually public airing of disagreement during a news conference in Brussels on November 13, Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, said the target of reducing Greece's debt to 120 percent of gross domestic product by 2020 should be moved by two years to 2022. Appearing surprised by Juncker's statement, Lagarde disagreed, insisting the target of 2020 should remain.

Under its standard procedures, the IMF cannot go on disbursing loans unless an adjustment program is fully funded up to the end.

Euro zone ministers agreed on Monday to grant Greece an extra two years, until 2016, to meet its fiscal targets, which the international lenders said would cost an extra 32 billion euros.

German Chancellor Angela Merkel has to make sure any easing of the conditions on Greece are palatable both to taxpayers before next year's election and her coalition partners.

Horst Seehofer, the head of Bavaria's Christian Social Union (CSU), which shares power with Merkel's conservatives, on Sunday struck a more conciliatory tone than previously.

"If the Greeks need more time, you can talk to the CSU about that," he told Bild am Sonntag newspaper.

"We must consider whether the alternative to a delay for the Greeks would not cost significantly more money, for example via a sharp rise in unemployment here," he said.

"The political art is to avoid a conflagration caused by a Greek bankruptcy without giving up efforts to tackle its debt," he said.

Several CSU members have taken a tougher line, openly talking about Greece's possible exit from the euro zone.

(Editing by Will Waterman)