Germany snubs Greece request

Greece's efforts to hash out a deal with its European creditors while loosening unpopular economic reforms took a hard blow Thursday as Germany flatly rejected a formal request for a six-month loan extension that Athens filed hours earlier.

The formal submission was viewed as a positive sign by European leaders, including European Commission President Jean-Claude Juncker, who said it could "pave the way for a reasonable compromise."

But two hours after Greek Finance Minister Yanis Varoufakis filed the request with his Dutch counterpart, Jeroen Dijsselbloem, the president of the Eurogroup, that optimism was dampened as Athens and Berlin began aiming a series of less-than-diplomatic jabs at one another.

"The letter from Athens is not a substantive proposal for a solution," German Finance Ministry spokesman Martin Jäger said. "In truth it aims at bridge financing, without meeting the requirements of the program. The letter does not meet the criteria agreed upon in the Eurogroup on Monday."

"Trojan horse"

One German official tasked with evaluating Varoufakis' letter, quoted by the news agency dpa, called the Greek proposal a "Trojan horse" intended to thwart the existing bailout program.

Greek Prime Minister Alexis Tsipras shot back: "Tomorrow's Eurogroup has just two choices: To accept or reject the Greek request. We will now discover who wants to find a solution, and who does not."

Those comments followed what was widely regarded as Athens extending an olive branch to Brussels.

Greek concessions

In his letter to Dijsselbloem, Varoufakis signalled that the new leftist government was ready to abandon many of its previous demands in order to stave off possible bankruptcy and an exit from the 19-nation currency union.

In the document, obtained by the Reuters news agency, Varoufakis committed to maintaining fiscal balance, pledged immediate action to fight tax evasion and corruption and promised steps to kick-start economic growth.

He also vowed the Greek government would meet its obligations to its international creditors and said Athens would recognize the existing bailout program as the legally binding framework. Varoufakis assured Brussels that Greece would refrain from "unilateral action that would undermine the fiscal targets, economic recovery and financial stability" of the country.

In an obvious concession, Varoufakis wrote that the government would accept the extension being monitored by the European Commission, the European Central Bank and the International Monetary Fund - a trio so unpopular on the streets of Athens that it had to ditch its "Troika" name earlier this month.

Sidestepping austerity

But he did not budge on two of Tsipras' key campaign promises, which helped sweep the radical left Syriza party to power last month.

First, the Greek proposal stopped short of committing to a surplus on the country's primary budget - the balance before interest payments on debt - of 3 percent of output this year.

The Syriza-led government campaigned on a pledge to only deliver a surplus of 1.5 percent annually, arguing that further spending cuts would stifle economic growth.

Second, and perhaps most critically, Varoufakis only requested an extension of the Master Financial Assistance Facility Agreement - the contract governing its loan payments from the European Financial Support Mechanism (EFSF) - and not the full 240 euro-billion ($273-billion) bailout package.

Germany has repeatedly refused to accept such a move, saying it would allow Athens to sidestep its fiscal consolidation obligations that are part of the original 2010 agreement. The country's unbudging finance minister, Wolfgang Schäuble, has also accused Tsipras of pandering to voters back home.

Clash of personalities

But there was also speculation that Thursday's showdown came down to a clash of personalities, with the euro's fiscal hawk Schäuble fed up with his Greek counterpart Yanis Varoufakis' negotiating style.

"There is a real problem of personalities and I understand that. Schäuble is outraged by comments made by Varoufakis," a top European Union official told Agence France-Presse.

Unless the two sides reach a compromise, Greece's current bailout program will expire on Feb. 28.

An extension is crucial for Greece to avoid defaulting on its debts and possibly being forced out of the eurozone.

"Completely in control"

A government source in Athens reportedly said Greece only has cash reserves to last it through the end of March. The cash shortage has raised fears of market panic and worsened a run on the banks.

On Thursday, Greece's central bank chief, Yannis Stournaras, took pre-emptive steps, insisting that the country's banks do not face a liquidity shortage.

"There is absolutely no problem," he said. "We are completely in control."

Glimmers of hope

As negotiations in Brussels enter the 11th hour, there were renewed glimmers of hope as European leaders appeared to rally around a resolve to de-escalate the tension between Athens and Berlin and reach a deal.

French Prime Minister Manuel Valls said he believed Greece's concessions showed that a compromise was within reach.

"I take the recent declarations and decisions of the Greek prime minister, in his letter to Europe, as a very encouraging sign that a solution is possible and very quickly," Valls said in a speech to the French parliament. He added that he would keep pushing for Greece "to keep its place in Europe which welcomed it when it left dictatorship."

Tsipras struck a similarly conciliatory tone later in the day.

German Vice Chancellor Sigmar Gabriel echoed those sentiments, saying the loan extension request should be seen as "a starting point for negotiations."

"We must all stop issuing ultimatums," Gabriel said.