By Renee Maltezou and Jan Strupczewski
BRUSSELS (Reuters) - Greece rejected a proposal by its euro zone partners on Monday that it should accept a six-month extension of its international bailout programme while sticking to the terms of its agreement with lenders, casting talks on its debt into disarray.
EU officials said the talks were over unless Athens changed its mind after a leftist-led government won power last month and vowed to scrap the 240 billion euro bailout, reverse austerity policies and end cooperation with EU/IMF inspectors.
A Greek official said Finance Minister Yanis Varoufakis had rebuffed a draft statement put to him at a euro zone finance ministers' meeting in Brussels that spoke of Greece extending the current programme.
"Some people's insistence on the Greek government implementing the bailout is unreasonable and cannot be accepted," the official said. "Those who keep returning to this issue are wasting their time. Under such circumstances, there cannot be a deal today."
European Commission Vice-President Valdis Dombrovskis told reporters after the talks broke up after less than four hours that euro zone parters were willing to resume talks with Greece if and when it changed its position.
More From This Section
"It was clearly decided that if and once this request for an extension of the bailout is there, if there are certain commitments from the Greek authorities to stick to the programme, then the chairman of the Eurogroup will announce the next Eurogroup," Dombrovskis said.
German Finance Minister Wolfgang Schaeuble said before the talks that Greece had lived beyond its means for a long time and there was no appetite in Europe for giving it any more money without guarantees it was getting its finances in order.
Failure to reach a deal would raise fears that Greece could be forced out of the euro zone. The European Central Bank is due to review on Wednesday how much longer it is prepared to allow the Greek central bank to continue providing emergency funds to keep Greek banks afloat.
As the meeting in Brusssels broke up, a senior Greek banker said Greece's stance boded ill for the markets and the banks.
"It is a very negative development for the economy and the banks. The outflows will continue. We are losing 400-500 million every day and that means about 2 billion every week. We will have pressure on stocks and bond yields tomorrow."
Greek finance minister Yanis Varoufakis had spelled out in a combative New York Times article his country's refusal to be treated as a "debt colony" subjected to "the greatest austerity for the most depressed economy".
MONEY FLEEING
Varoufakis, who has ruled out requesting an extension, said in the article: "The lines that we have presented as red will not be crossed...
"Our government is not asking our partners for a way out of repaying our debts. We are asking for a few months of financial stability that will allow us to embark upon the task of reforms that the broad Greek population can own and support, so we can bring back growth and end our inability to pay our dues."
An opinion poll showed 68 percent of Greeks want a "fair" compromise with euro zone partners while 30 percent said the government should stand tough even if it means reverting to the drachma currency. The poll found 81 percent want to stay in the euro.
Deposit outflows in Greece have picked up. JP Morgan bank said money was fleeing Greek banks at about 2 billion euros a week, leaving 14 weeks before the banks run out of collateral.
The European Central Bank has allowed the Greek central bank to provide emergency lending to its banks, but a failure of the debt talks could mean the imposition of capital controls.
Euro zone member Cyprus was forced to close its banks for two weeks and introduce capital controls during a 2013 crisis. Such controls would need to be imposed when banks are closed. Greek banks are closed next Monday for a holiday.
The ECB will review its policy on Wednesday in the light of the Brussels talks, but an ECB source said it was unlikely to pull the plug on Greek banks as long as terms of a future programme were still under discussion.
Leftist Prime Minister Alexis Tsipras had requested a bridge programme for a few months while a new debt relief deal is agreed to replace the existing bailout, which has already forced drastic cutbacks onto ordinary Greeks.
The current programme expires at the end of the month. Some of the problem is semantic. The Greeks will not countenance anything that smacks of an "extension" to the old bailout or a continued role for the supervisory "troika" of international lenders.
($1 = 0.8785 euros)
(Additional reporting by Yann Le Guernigou, Michael Nienaber, Andrew Callus, Ingrid Melander, Alastair Macdonald, Adrian Croft, Foo Yun Chee, Robin Emmott, Tom Koerkemeier and Francesca Landini; Writing by Jeremy Gaunt, Paul Taylor and Alastair Macdonald; Editing by Paul Taylor and Giles Elgood)