By Renee Maltezou and Alastair Macdonald
ATHENS/BRUSSELS (Reuters) - Prime Minister Alexis Tsipras has told international creditors Greece could accept their bailout offer if some conditions were changed, but Germany said it could not negotiate while Greece was headed for a referendum on the aid-for-reforms deal.
In exchange for the conditional acceptance, the leftist leader, who has so far urged Greeks to reject the bailout terms in a referendum planned for Sunday, asked for a 29 billion euro loan to cover all its debt service payments due in the next two years.
With queues forming at many cash machines a day after Greece became the first advanced economy to default on the IMF, and signs that supplies of bank notes were running low, Tsipras has been under growing political pressure to reach a deal.
Global financial markets reacted remarkably calmly to the widely anticipated Greek default, strengthening the hand of hardline euro zone partners who say Athens cannot use the threat of contagion to weaker European sovereigns as a bargaining chip.
Tsipras asked in a letter to creditors seen by Reuters to keep a discount on value added tax for Greek islands, stretch out defence spending cuts and delay the phasing out of an income supplement to poorer pensioners.
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"As you will note, our amendments are concrete and they fully respect the robustness and credibility of the design of the overall programme," the leftist Greek leader wrote.
Euro zone finance ministers were due to discuss the Greek request on a conference call at 1530 GMT, but the initial reaction from ministers and senior officials was that the letter contained elements that ministers would find hard to accept.
German Chancellor Angela Merkel said Greece had not fulfilled its obligations. She did not exclude further negotiations, but ruled out starting them while Greece heads for the referendum. "Before the referendum, no further talks on an aid programme can take place," she said.
It was unclear whether the referendum would go ahead after Finance Minister Yanis Varoufakis indicated on Tuesday that it might be scrapped if a deal could be reached.
Although the letter from Tsipras was dated June 30, it arrived after the 19 Eurogroup ministers had ended a conference call on Tuesday evening. An EU official said it had been received around midnight, when the country's international bailout expired when it defaulted on an IMF repayment.
"The Hellenic Republic is prepared to accept this Staff Level Agreement subject to the following amendments, additions or clarifications, as part of an extension of the expiring EFSF programme and the new ESM Loan Agreement for which a request was submitted today," Tsipras wrote.
German Finance Minister Wolfgang Schaeuble poured cold water on hopes of a rapid breakthrough, saying the letter had come too late and it was still not clear what Greece wanted.
"That did not provide further clarity," he said, adding that there was "no basis" for serious negotiations with Athens at the moment.
Any talks on a new programme would have to start from scratch with different conditions, he told a news conference in Berlin. European Commission Vice-President Valdis Dombrovskis said Greece's deteriorating finances made the situation much more complicated to resolve.
PENSIONERS SUFFERING
On the third day of a bank closure, long lines formed at many cash distributors. Even with a withdrawal limit of 60 euros a day, there were signs of banknote shortages. Bankers said 50-euro and 20-euro notes were running low.
Around 1,000 banks around the country opened to allow pensioners to withdraw a limited sum in cash since many older people in Greece do not have credit or debit cards.
Kiki Rizopoulou, a 79 year-old pensioner from Lamia in central Greece had to travel to Athens to collect her pension, spending 20 euros of the 120 euros she was allowed to take out.
"I already have to pay back 50 euros that I owe. It's embarrassing," she said.
The ruling Syriza party plastered Athens with posters calling for a "No" vote. But the hardship facing pensioners added to the pressure facing Tsipras, who has indicated he will resign if he loses the referendum.
The Tsipras letter contained only a single sketchy reference to labour market reform, which was one of the creditors' key demands to make the Greek economy more competitive, and no mention at all of frozen privatisations, another bugbear.
"The new framework will be legislated in autumn 2015," it said without saying what measures it contained. Tsipras' leftist government wants to restore collective bargaining rights scrapped under previous bailout-driven reforms, and opposes a demand to make collective layoffs easier in the private sector.
Tsipras did agree to implement immediately a range of measures recommended by the Organisation for Economic Cooperation and Development to make it easier to do business and open up closed business sectors.
An opinion poll showed opposition to the bailout in the lead but also that the gap had narrowed significantly as the bank closure and capital controls began to bite.
SCEPTICISM
European financial markets remained strikingly calm in the light of the upcoming referendum, the IMF default and heightened concerns about the risk of Athens sliding out the euro.
The lack of panic or contagion to other euro markets stood in marked contrast to 2011, when the Greek crisis was perceived as a threat to the future of the single currency.
And this lack of overspill has emboldened the more hawkish of Greece's sovereign creditors, including those in Berlin, who insist Greece had been effectively ringfenced by a host of financial buffers and its fate would not undermine the integrity of the euro in the same way it did four years ago.
French Finance Minister Michel Sapin, who has been Greece's strongest sympathiser in the euro zone, told RTL radio: "The aim is to find an agreement before the referendum if possible... But it's dreadfully complicated."
The ECB's policymaking governing council was to meet in Frankfurt to decide whether to maintain, increase or curtail emergency lending that is keeping Greek banks afloat despite a wave of deposit withdrawals and the state's default.
Germany's Bundesbank was leading hawks who argue that the ECB cannot go on providing funds through the Greek central bank as before to lenders that are backed by an insolvent sovereign.
One possible move would be to increase the "haircut" charged on Greek government bonds presented as collateral for funds in light of the IMF default.
Schaeuble, who has taken a hard line on Greece, took the unusual step of telling lawmakers he would advise the ECB not to raise liquidity to Greek banks, according to participants at a closed-door meeting. Berlin normally insists the central bank is independent and should not receive advice from politicians.
A poll by the ProRata institute published in the Efimerida ton Syntakton newspaper showed 54 percent of those planning to vote would oppose the bailout against 33 percent in favour.
However a breakdown of results between those polled before and after Sunday's decision to close the banks and impose capital controls showed the gap narrowing.
Of those polled before the announcement of the bank closures, 57 percent said they would vote "No" against 30 percent who would vote "Yes". However among those polled after, the "No" camp fell to 46 percent against 37 percent for "Yes".
(Additional reporting by Lefteris Karagiannopoulos in Athens, Mike Dolan in London, Michelle Martin, Madeline Chambers and Gernot Heller in Berlin; Writing by Paul Taylor and James Mackenzie; editing by Anna Willard and Philippa Fletcher)