BRUSSELS, Belgium — Europe and the IMF will only proceed with their planned second Greek bailout if banks accept a “haircut” of “at least 50 per cent,” diplomatic sources said Friday.

Even that would require an increase of (euro) 5.0 billion ($596 billion) to the original (euro) 109 billion in planned eurozone and IMF loans, according to a report drawn up by international auditors discussed by eurozone ministers at Brussels talks.

Banks would need to take a 60 per cent “haircut” on Greek debt to keep “official funding” at the level presently planned, the report seen by AFP concludes, with the “worst-case” scenario outlined by auditors envisaging (euro) 440 billion in future bailout funds.

That would see Greece unable to borrow on commercial money markets, given already unsustainable rates of interest, for decades.

The cost of the second bailout initially decided three months ago to the day, but which veered off course as Greece fell ever deeper into recession, would now rise to (euro) 114 billion, the ministers were told in Brussels.

An EU diplomatic source told AFP after their discussions broke up overnight that the conclusions drawn from the talks were that “a minimum of 50 per cent private-sector involvement is needed” to go ahead.

The source said that approval by the International Monetary Fund, and therefore the EU, on plans aimed at containing contagion threatening the rest of the eurozone, and keeping Greece in the currency area in the long-term, “is only possible if there is clarity on the second programme,” — that it crosses that 50 per cent threshhold.

Another diplomatic source conceded that getting the second bailout back on track would now require movement both from eurozone partners and the banks.

Bailout partners, who gave their green light earlier on Friday to the release of (euro) eight billion in blocked loans from the May 2010 first bailout for Greece worth (euro) 110 billion, pending agreement from the IMF, could still be required to offer “more concessional official sector financing terms,” the conclusions said.

Working on the worst-case assumptions, “the time required to get back to market could be significant, generating a potential need for additional official financing ranging up to (euro) 440 billion.”

“It must be noted that the estimated costs to the official sector exclude any contagion-related costs,” auditors underlined.

Eurozone ministers said in a statement that “in order to ensure debt sustainability, we will conclude a second economic adjustment programme for Greece, with an appropriate combination of additional new official financing and private-sector involvement.”