The EU, ECB and IMF mission to Greece said in a report obtained by Reuters that the next disbursement of Greek aid could not take place until it corrected the under-financing in its adjustment programme.
The long-awaited report by the troika said Greece risked missing its deficit targets without further consolidation measures and that its recession appeared to be longer and deeper than initially expected.
'The financing strategy needs to be revised. Given the remoteness of Greece returning to funding markets in 2012, the adjustment programme is now under financed,' it said.
'The next disbursement cannot take place before this under financing is resolved.'
The troika said a privatisation agency with an independent board, to which the European Commission and euro zone member countries could nominate members, would be set up shortly.
Euro zone finance ministers said in a statement that Greece could return to fiscal sustainability if it strictly implements economic and financial policies agreed with the EU, the IMF and the ECB.
The statement came after ministers from the 17 countries using the euro, called the Eurogroup, discussed the conclusions of the troika's report.
'A Eurogroup conference call took place this afternoon to exchange views on the assessment of the Troika following the conclusion of its fourth review mission to Greece,' the statement said.
'The Eurogroup welcomed the staff-level agreement with the Greek authorities on a set of economic and financial policies needed to meet the programme objectives.
'We share the view expressed by the Troika that strict implementation will help restore fiscal sustainability, safeguard financial stability and boost competitiveness.'
Meanwhile, German finance minister Wolfgang Schauble wants holders of Greek debt to extend their credits by seven years, according to a letter he sent to euro zone partners.
In the letter, which is dated Monday and was sent to the European Central Bank, the European Commission and the International Monetary Fund, Schauble calls for 'a quantified and substantial contribution of bondholders to the support effort' for Greece.
'Such a result can best be reached through a bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven years,' Schauble wrote.
German authorities have insisted on private sector involvement in any future Greek rescue plans but had not given details on what they expected until now.
The finance minister also evoked 'a real risk of default within the euro zone' if Greece is not granted the next tranche of aid contained in an initial rescue plan worth €110 billion backed by the EU and IMF.
'I am aware that discussions on private sector participation continue, but I am sure they will result in a constructive solution before our meeting on June 20,' Schauble said. He referred to a gathering of euro zone finance ministers.
The ECB opposes forcing private investors to participate in a new Greek rescue plan, because it would be tantamount to restructuring the country's debt, which could have serious consequences for the euro zone as a whole.
But ECB officials have indicated they could live with a roll over of Greek debt on a voluntary basis, which would involve banks and other investors agreeing to buy new bonds to replace ones set to mature in the next couple of years.
However, incoming ECB president Mario Draghi warned today that a restructuring of sovereign Greek debt would send 'severe' shockwaves across the euro zone.
'A debt restructuring is an option whose costs would outweigh the benefits,' the Italian, set to take over from Jean-Claude Trichet as the head of the ECB in the autumn, said in written answers to a European Parliament committee scrutinising his nomination by euro zone finance ministers.
Draghi said a restructuring, or partial write-off, would 'imply severe financial and macroeconomic risks' and 'poses a significant risk of destabilising the financial system, with severe consequences for the growth outlook of the euro area.'
He added that 'significant spill-over effects on other euro area countries cannot be excluded, with a negative impact on confidence and expectations of further restructuring in the country concerned or elsewhere.'
Greek Govt won't take 'easy' road of elections
The Greek government has said that it will call an election to avoid having to take tough decisions on the country's future.
Prime minister George Papandreou was due to meet senior members of his socialist party today to try to stem an outbreak of unrest over the social cost of the bailout before it turns into a full-scale parliamentary rebellion.
Tens of thousands are protesting regularly against the austerity measures demanded by the European Union and IMF, as well as corruption and state mismanagement, while workers at state firms earmarked for privatisation have called a strike for tomorrow.
But government spokesman George Petalotis dismissed suggestions that Papandreou would take the 'easy' way out of the crisis by calling early elections.
These would be a likely consequence if any Socialist backbench rebellion led to parliament rejecting the government's medium-term economic plan.
'Everyone has a responsibility, today more than ever, for the future of this country,' Petalotis told Real FM radio.
The Socialist party says it inherited the debt and budget crisis when it defeated the conservative New Democracy party in 2009, but has repeatedly stressed it aims to serve its full four-year term.
'For us it would have been very easy to say 'let's have elections, why carry this bomb we inherited to the end'?' Petalotis said.
'Elections would have worse consequences for the country.'
Opinion polls show the Socialist Party's lead over New Democracy has vanished, suggesting that new elections could produce a stalemate during which the latest IMF/EU rescue could unravel.
Papandreou was due to meet the Socialist Party's political council, hoping to win their backing for the medium-term plan.
This lays out years of austerity and faster privatisation, agreed with the EU and IMF to secure the second financial rescue in just a year.
Unemployment climbed to 16.2% in March, the highest in the euro zone after Spain, data showed today.
Industrial production tumbled 11.0% year-on-year in April as Greece suffers its third year of recession, public spending cuts and higher taxes.
