Greek officials firmly dismissed a German proposal on Saturday for Greece to surrender control over its budget policy to an EU commissioner.

It is "the product of a sick imagination" said Anna Diamantopoulou, Education Minister and former European Commissioner, after the Financial Times first reported the proposal made to Germany's eurozone partners on Friday. It was suggested that a commissioner, appointed by the other eurozone finance ministers, would have the power to veto budget decisions made by the Greek government.

"Budget consolidation has to be put under a strict steering and control system," the Financial Times quoted the proposal as saying.

"Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time," it said.

Greek government spokesman Pantelis Kapsis asserted, however, that after a series of tough financial reforms and more changes on the cards, the government should to retain control of the budgetary decisions.

"The government stresses that this responsibility belongs exclusively to the Greek government," Kapsis said. "The government has made a series of steps to improve the effectiveness of the public administration and a closer monitoring of the efforts to achieve fiscal targets."

Negotiators said they expected to have a deal ready next week

The European Commission in Brussels came out in support of the Greek government on Saturday, reaffirming its rejection of the proposal.

"The Commission is committed to further reinforcing its monitoring capacity and is currently developing its capacity on the ground," said economic affairs spokesman Amadeu Altafaj. Such key decisions, however, "must remain the full responsibility of the Greek government."

Slow progress

The revelations came as Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos emerged confident after lengthy talks with Charles Dallara, the head negotiator for banks and private investors which hold a large portion of Greek government bonds.

"We are a step away," Venizelos said, adding that the negotiations aimed at convincing the private lenders to accept a 50 percent writedown on 200 billion euros ($264 billion) of Greek debt were "difficult and delicate."

Dallara and his colleague Jean Lemierre also appeared confident that the negotiations, which have been going on for the past three weeks, were nearing their completion.

"Further progress was made, building on the understandings reached yesterday [Friday] on the key legal and technical issues," they said in a joint statement after the meeting adjourned.

Reducing the country's debt is a precondition to Greece receiving a crucial second bailout of 130 billion euros. If the negotiations were to fail, Greece would be unable to pay a 14.5-billion-euro bond on March 20, meaning it would default on its debt.

Author: Charlotte Chelsom-Pill, Stuart Tiffen (dpa, AFP, AP)

Editor: Martin Kuebler