Greece drops key bailout demands, but Germany still objects

ATHENS, Greece (AP) – Greece heads to another round of negotiations Friday after dropping key demands for a bailout settlement, but still faced stiff opposition from lead lender Germany, which criticized Athens’ latest proposals as a “Trojan horse” designed to dodge its commitments.

Eurozone finance ministers agreed to hold their third meeting on the Greek debt crisis in just over a week after Athens formally requested a six-month extension of loan agreements with rescue creditors that expire this month.

Going back on recent election campaign pledges, Prime Minister Alexis Tsipras’ new left-wing government said it would honor debt obligations and agree to continued supervision from bailout lenders and the European Central Bank.

Late Thursday, Tsipras held telephone conversations with French President Francois Hollande and German Chancellor Angela Merkel after Germany sharply criticized the Greek offer during preparatory talks in Brussels.

Greek media, including state television, widely quoted a German representative at the talks as saying the Greek offer “rather represents a Trojan horse, intending to get bridge financing and in substance putting an end to the current program.”

The comments were confirmed by a senior official in the Greek Finance Ministry who could not be identified because the talks in Brussels were not public. In Berlin, government officials did not comment publicly on the remarks, but told The Associated Press they accurately reflected the German government position.

Germany argues that Greece has failed to provide detailed alternatives to cost-cutting reforms imposed by the previous government that helped the country balance its budget after decades of excessive borrowing.

Greek and European markets were largely unaffected by the German response. Europe’s Stoxx 50 index rising 0.64 percent, but Athens is under increasing pressure to break the impasse with lenders.

“If there’s no agreement in the next few days there is a risk of (a bank run) because liquidity in Greek banks is very limited and there are many who say that capital controls are very close,” said Evangelos Sioutis, head of equities at Guardian Trust Securities.

Although Greece emerged from the recession with a primary budget surplus last year, it faces a spike in debt repayment in 2015 with hopes of a full return to markets hit by renewed uncertainty and a resulting surge borrowing rates.

Tsipras ousted traditionally dominant political parties in Jan. 25 elections, promising to scrap bailout agreements and supervision, and demand a massive write down of Greece’s 240 billion euro bailout debt so that his government could tackle a dramatic surge in unemployment.

But in its latest proposals Thursday – carefully worded to avoid reference to the bailout agreement or “memorandum” – it scaled back those aims to seek more modest primary budget surpluses, budget-neutral growth measures, and calls for a deal later this year to improve bailout loan repayment terms.

Greek officials appeared visibly irritated by the latest German objections.

“All the conditions are there for a transition agreement to be achieved,” Deputy Prime Minister Giannis Dragasakis said.

“At this moment it appears that there are powers that would like Greece on its knees, exactly so they can impose their will.”

In Washington, U.S. officials said that Treasury Secretary Jacob Lew had been closely monitoring the Greek debt negotiations. Officials said that Lew spoke by phone Thursday with finance ministers in Greece and France, as well as Dutch Finance Minister Jeroen Dijsselbloem, who is the current chair of Eurozone finance ministers.

“Our message has uniformly been that the Europeans have the capacity to handle these challenges,” said a U.S. Treasury official who briefed reporters about the phone calls under rules that did not allow use of his name. “It is going to require a constructive and pragmatic way forward and some compromise and some turning down and toning down a bit of the rhetoric.”