This article is more than 5 years old

This article is more than 5 years old

Germany and Greece are on a collision course ahead of crucial bailout talks on Friday after Berlin knocked back a Greek compromise proposal and insisted the country stick to its existing austerity plan.

Setting the scene for a make-or-break meeting in Brussels , the eurozone’s largest economy dismissed as “not substantive” a proposal from Greek finance minister Yanis Varoufakis,which appeared to have all but capitulated to creditors’ demands.

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The rebuff from Berlin came just hours after Greece filed a formal request to its eurozone partners to extend its loan agreement, in the hope of averting a cash crisis.



A Greek government spokesman insisted that the eurogroup had only two options: either to accept or reject the Greek request. “It will then be clear who wants to find a solution and who doesn’t.”

The European commission welcomed the Greek proposal – widely seen as a climbdown on some of Greece’s key demands – as a positive sign that could pave the way for compromise.



But in a sign of divisions within the EU, Germany said the Greek plan failed to meet eurozone ministers’ demands that Greece stick to its bailout programme – a set of conditions laid out on Monday at an acrimonious meeting in Brussels that failed to end the deadlock.

Greece needs unanimous backing from the other 18 eurozone finance ministers to secure a deal.

“The letter from Athens is not a proposal that leads to a substantial solution,” finance ministry spokesman Martin Jaeger said.



“In truth it goes in the direction of a bridge financing, without fulfilling the demands of the programme. The letter does not meet the criteria agreed by the Eurogroup on Monday.”

Germany’s rejection heightened the uncertainty around Friday’s meeting, which will be the eurozone’s third attempt in 10 days to resolve a standoff that has sent jitters across the continent at the prospect of a messy Greek exit from the single currency.

One source said: “I am sort of asking, what the fuck, are they [ministers] really going to come again and have no agreement.”



The source said everyone hoped for an agreement, but added: “There has not been much support [for the plan], it seems Greece will find it difficult.”

Others expect a compromise will be found at the last minute. “Probably the Greeks will move but there is going to be more negotiation needed to find an agreement,” said another source.

The Greek government, which is under fire from radical ultra-leftists for making the loan application, described the latest proposal as a way to deal with the country’s “humanitarian crisis” and kickstart the economy.



But the request was widely viewed as a climbdown by the Greek government.

In an effort to break the impasse in advance of Friday’s meeting of euro group finance ministers – their third this week – the Greek prime minister AlexisTsipras and German chancellor Angela Merkel discussed the crisis for almost an hour late Thursday evening.

Officials in Athens described the talks - interpreted by official translators and not conducted in English - as “constructive,” saying both had conveyed the desire to find a solution.

Merkel, they added, had assumed a more conciliatory stance than her finance minister Wolfgang Schauble. The German chancellorhas repeatedly said she wants Greece to remain in the single currency.

Earlier, Tsipras spoke with the French and Italian leaders. The French president François Hollande was also quoted in the Greek media as saying he was willing to support Athens.

In a letter to Jeroen Dijsselbloem, president of the eurozone finance ministers’ group, obtained by Reuters, Greece’s finance minister, Yanis Varoufakis, conceded that the Greek authorities would “refrain from unilateral action that would undermine the fiscal targets, economic recovery and financial stability”.

Crucially, he said Greece would remain under the supervision of the European commission, the European Central Bank and International Monetary Fund – the unpopular troika that the Syriza-led government had insisted it would throw off.

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Analysts at Deutsche Bank said the Greek plan represented “reasonable progress” in meeting the demands of the Eurogroup; while the head of the European Trade Union Confederation accused Germany of “playing with fire” by rejecting the Greek compromise.

“Germany is demanding unconditional surrender from a proud people that has elected a new Government on a crystal clear platform of easing austerity,” said ETUC’s general secretary, Bernadette Ségol.

Aides to the Greek prime minister Alexis Tsipras insisted that the loan request respected the popular will of the Greek people.

Calling it an “interim agreement,” insiders said the request was significant for raising the issue of debt restructuring and including a pledge from the new government to keep to a balanced budget.



“It’s not very often that you get left-leaning governments making those sort of commitments,” said one Greek official.

“They’ve clearly sought to strike a very fine balance between tackling the humanitarian disaster and promising to be a government that will not only tackle corruption and tax evasion, the malfunctions of Greek society, but take on all the vested interests that plague political and business life.”

In Berlin, the request from Greece for an extension of its loan agreement – known as the “master financial assistance facility agreement” – is seen very differently.

“The Greeks have simply tried to pass the buck back to the middle,” Matthias Kullas from the Centre for European Politics in Freiburg said.



He stressed the German reaction was not a rejection over reaching a compromise with Greece, but did mean that expectations of an agreement on Friday when finance ministers from the eurogroup meet again, were now “slim”.

“If an agreement is reached, it will be at the last minute,” he said. “It’s in the interest of both sides to stick to their guns. The earlier one of them diverts from his course, the weaker his position becomes and the more elbow room he leaves for the other.”

Raoul Ruparel, the head of economic research at Open Europe, said the Greek government had little chance of getting the rest of the eurozone to back its plans on labour market reforms, pensions and privatisations.

In a briefing paper published before Greece’s latest request was rejected by Germany, he said the eurozone could give way on another one of Greece’s key demands, to allow the government to run a smaller budget surplus, so freeing up money for social spending. “The Greek election represented a tipping point, meaning that the rest of the eurozone will have to consider some tradeoffs,” he wrote.

A spokesperson for the European commission president, Jean-Claude Juncker, said the letter was a positive sign that could pave the way for a reasonable compromise.

Hopes of ending Greece’s standoff with the eurozone pushed Greece’s stock market up by nearly 3% on Thursday. The mood of investors was also boosted by the decision of the European Central Bank to allow Greece a further €3.3bn in emergency liquidity, bringing the total ECB help to Greek banks to €68.3bn.