However, they deferred a decision on the immediate release of €12 billion to prevent a debt default by Greece until their heads of state and government meet on Thursday.
Finance ministers of euro zone nations reached a compromise on Sunday night on involving private creditors in a second multi-billion euro financial rescue package for debt-ridden Greece.
However, they deferred a decision on the immediate release of €12 billion to prevent a debt default by Greece until their heads of state and government meet on Thursday.
There is a basic understanding among the finance ministers that private investors should be involved in sharing the burden of the second bailout of Greece, estimated to be between €90 billion and €120 billion, but this must be entirely on a "voluntary" basis, Jean-Claude Juncker, the chairman of the euro group, said after the opening day of discussions in Luxembourg.
The ministers agreed that no pressure should be brought to bear on private investors, he stressed.
Their decision is seen as a setback for German finance minister Wolfgang Schaeuble, who had pressed for "binding" involvement by private bond holders such as banks, investment funds and insurers in the proposed rescue package.
Germany had initially proposed that the private bond holders should be forced to exchange their Greek bonds, which are maturing, for new bonds having a maturity of seven years as part of a "soft rescheduling" of Greece's debts.
Germany argued that this will give Greece more time to pay back its debts and to bring its finances under control.
However, the German plan was dropped following strong opposition from France, which expressed fears that its banks with huge exposure to Greek debts will lose heavily if they were forced to take part in debt rescheduling.
Juncker said the fifth tranche of €12 billion from the first rescue package of €110 billion ($159 billion) pledged a year ago will be released only after the Greek government passes a new law on more austerity measures to stabilise the economy at the end of this month.
However, a final decision on releasing the amount will be taken by the euro zone leaders, who are holding a summit in Brussels on Thursday and Friday, he told journalists.
They will also discuss the proposed second rescue package for their debt-stricken partner.
Greece urgently needs the fifth tranche to avoid defaulting on its debt repayments due next month.
Schaeuble called upon his colleagues to speed up the release of the fifth tranche.
"If the payment cannot be made on the grounds that Greece has not fulfilled the conditions, then Greece will face a grave situation and therefore the matter is very critical," he said.
He pleaded for giving Greece more time to stabilise its economy so that it will be in a position to raise capital from the financial markets.
Everything will depend on continued efforts by the Greek government to reduce budget deficit through drastic spending cuts and increasing revenue through privatisation and other measures.
If Greece becomes insolvent, its consequences for the global economy will be worse than the collapse of US investment bank Lehman Brothers in 2008, Schaeuble warned.
The fifth tranche of the EU-IMF financial rescue fund pledged in May last year will also ensure that Greece will remain solvent till September, thereby giving more time for the EU leaders to sort out their differences over the second rescue package.
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