Germany rejects Greek bailout extension request

Greece formally requested a six-month extension of its eurozone loan program Thursday, proposing terms different from the austerity measures imposed on Athens under the existing bailout. But Germany quickly dampened hopes of a deal after rejecting the Greek plan.

Greece's move seemed to boost chances that a compromise can be reached to keep the country solvent after the current round of bailout funds is due to end on Feb. 28. Without a deal, the European Central Bank would face pressure to cut off emergency financing for Greek banks — a move that could force Athens into printing its own currency and leaving the euro.

But Germany, the strongest economy in the eurozone and Greece's biggest creditor, is skeptical of Greece’s attempts to change the terms of a bailout and responded negatively to the proposal.

German Finance Ministry spokesman Martin Jaeger said in a statement Thursday that a letter from the new Greek government "is not a substantial proposal for a solution." He said that it amounts to a request "for bridge financing without fulfilling the demands of the [bailout] program." He said the letter from Greece doesn't correspond to criteria agreed to on Monday by eurozone members.

Germany's opposition to the Greek request, which was echoed in other eurozone capitals including Belgium, Finland and Slovakia on Thursday, sets the stage for a tense Friday meeting in Brussels of the so-called eurogroup, the 19 finance ministers of the countries in the eurozone who have targeted the end of this week for any agreement.

The head of the European Commission was somewhat more upbeat about Greece's request.

Spokesman Margaritis Schinas said Commission President Jean-Claude Juncker "sees in this letter a positive sign which, in his assessment, could pave the way for a reasonable compromise in the interest of financial stability in the euro area as a whole."

Athens said it asked for an extension to its “master financial assistance facility agreement” with eurozone creditors, adding that it is proposing different terms from current bailout obligations that are deeply unpopular in Greece and blamed by the leftist government of Prime Minister Alexis Tsipras of ruining the economy.

In the document detailing the extension request by Greek Finance Minister Yanis Varoufakis on Thursday, Greece pledged to meet its financial obligations to all creditors, recognize the existing EU/International Monetary Fund program as the legally binding framework and refrain from unilateral action that would undermine the fiscal targets.

Crucially, it accepted that the extension would be monitored by the European Commission, European Central Bank and International Monetary Fund, a climbdown by Tsipras, who had vowed to end cooperation with the "troika" inspectors accused of inflicting economic and social damage on Greece.

The document, however, stopped short of accepting that Greece should achieve this year a primary budget surplus, excluding debt service, equal to three percent of the country's annual economic output, as promised under the bailout deal.

Tsipras wants to cut that to 1.5 percent to allow more state spending to ease the plight of the poor, while the document left the issue open by speaking of attaining "appropriate primary budget surpluses."

German officials also described the Greek request to extend Athens' bailout program on Thursday as a "Trojan Horse" that left "immense room for interpretation" and gave no clear commitment that Greece would meet the terms on its current loans. The quote was taken from a leaked draft of a German position paper prepared for a meeting of Eurozone officials in Brussels.

The six-month interim period requested by Greece would be used to negotiate a long-term deal for recovery and growth incorporating further debt relief measures promised by the Eurogroup in 2012.

Crucial details remain to be clarified on the fiscal targets, labor market reforms, privatizations and other measures due to be implemented under the existing program.

The objections from Berlin on Thursday drew a tart response from Athens, which questioned whether Germany spoke for the other eurozone finance ministers.

"Tomorrow's Eurogroup has only two options: either to accept or reject the Greek request," a Greek official said. "It will then be clear who wants to find a solution and who doesn't."

Still, a Greek official said Prime Minister Alexis Tsipras had a 50-minute telephone call with German Chancellor Angela Merkel on Thursday, believed to be their first substantive exchange since the Athens government was elected on Jan. 25.

"The conversation was held in a positive climate, geared towards finding a mutually beneficial solution for Greece and the eurozone," the official said. A German spokesperson confirmed the call but would not comment on the contents.

Al Jazeera and wire services