Greece's Tsipras digs in against bailout

By Renee Maltezou and Alastair Macdonald

ATHENS/BRUSSELS (Reuters) - A defiant Prime Minister Alexis Tsipras urged Greeks on Wednesday to reject an international bailout deal, wrecking any prospect of repairing broken relations with European Union partners before a referendum on Sunday that may decide Greece's future in Europe.

Less than 24 hours after he wrote a conciliatory letter to creditors asking for a new bailout that would accept many of their terms, Tsipras abruptly switched back into combative mode in a television address.

Greece was being "blackmailed", he said, quashing talk that he might delay the vote, call it off or urge Greeks to vote "Yes".

The remarks added to the frantic and at times surreal atmosphere of recent days in which acrimonious messages from the leftist government have alternated with late-night offers of concessions to restart negotiations.

A day after Greece became the first developed economy to default on debt to the International Monetary Fund, long lines at cash machines provided a stark symbol of the pressure on Tsipras, who came to power in January vowing to end austerity and protect the poor.

"A 'No' vote is a decisive step towards a better agreement that we aim to sign right after Sunday's result," he said, rejecting repeated warnings from European partners that the referendum would effectively be a vote on whether Greece stays in the euro or returns to the drachma.

European Council President Donald Tusk retorted in a tweet: "Europe wants to help Greece. But cannot help anyone against their own will. Let's wait for the results of the Greek referendum."

Euro zone finance ministers held an hour-long conference call to discuss the previous night's offer from Tsipras, but were adamant that no further discussions would be held until after Sunday's vote.

"We will come back to your request for financial stability support from the ESM (European Stability Mechanism) only after, and on the basis of the outcome of, the referendum," the head of the currency zone ministers' Eurogroup, Jeroen Dijsselbloem, wrote in a letter to Tsipras.

IMF Managing Director Christine Lagarde told Reuters in an interview that she would want to see reforms before opening discussions on any new debt package.

Global financial markets have 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.

In his overnight letter to creditors, seen by Reuters, Tsipras agreed to accept most of their demands for taxes and pension cuts and asked for a new 29 billion euro loan to cover all debt service payments in the next two years.

However, even if negotiations do restart after the referendum, Germany and others made clear that any talks on a new programme would have to start from scratch with different conditions.

The exasperated tone to public comments of European leaders exhausted by the chaotic turnarounds of the past few days offered little hope of a breakthrough.

Tsipras has suggested he would step aside if Greeks vote "Yes" in Sunday's referendum.

PENSIONERS SUFFERING

"This government has done nothing since it came into office," German Finance Minister Wolfgang Schaeuble said in a speech in the lower house of parliament in which he accused Athens of repeatedly reneging on its commitments.

"You can't in all honesty expect us to talk with them in a situation like this," he said.

French Finance Minister Michel Sapin, among Greece's strongest sympathisers in the euro zone, told RTL radio, "The aim is to find an agreement before the referendum if possible ... But it's dreadfully complicated."

Lagarde declined to be drawn out on whether she viewed Tsipras was a reliable negotiating partner after his latest switch, although she did say the Fund wanted to see evidence of reforms before talks about any new potential debt package.

"We have received so many 'latest' offers, which themselves have been validated, invalidated, changed, amended, over the course of the last few days, that it's quite uncertain exactly where the latest proposal stands," she said.

Greece has shut its banks this week, imposed capital controls and limited teller machine withdrawals to prevent the public from emptying the banks.

On the third day of the closure, the costs were biting deeper for ordinary Greeks, with long lines forming at many ATMs and limited amounts of cash being doled out to pensioners. Even with a withdrawal limit of 60 euros a day, there were signs of banknote shortages, with bankers saying 50-euro and 20-euro notes were running low.

The European Central Bank said it would maintain emergency lending that is keeping Greek banks afloat at the same level as late last week, keeping pressure on Greece as its lenders run out of cash.

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 withdraw.

"I already have to pay back 50 euros that I owe. It's embarrassing," she said.

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.

Posters from the ruling Syriza party calling for a "No" vote started to appear in central Athens. A large white banner declaring 'No to blackmail and austerity!' was unfurled from windows of the finance ministry.

Finance Minister Yanis Varoufakis said on Twitter that it was the work of "unionists" and it was later removed.

SCEPTICISM

The Tsipras letter asking for a new bailout deal appeared to move closer to accepting creditor demands. But it contained only a single sketchy reference to labour market reform and no mention at all of frozen privatisations, both big priorities for the creditors.

He asked 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.

    The lack of panic in financial markets stood in marked contrast to 2011, when the Greek crisis was perceived as a threat to the future of the single currency and investors bid up the borrowing costs for other countries seen as being in danger, like Spain and Italy. Most euro zone leaders now believe any damage to the currency zone from Greek turmoil can be contained.

"Financial markets are not showing there is contagion or spreading of those risks to the periphery," Bank of England Deputy Governor Jon Cunliffe told BBC Radio 5live in an interview. But, in an interview with Radio 4, Cunliffe warned that things could change.

"It's a very volatile situation. It's a very fluid situation. It is a very dangerous situation.... We have to prepare for the worst," he said.

In a poll by the ProRata Institute published in the Efimerida ton Syntakton newspaper, 54 percent of Greeks planning to vote would oppose the bailout against 33 percent in favour.

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".

Seeking a "No" vote, Varoufakis told state television a deal would then swiftly follow, even as early as Monday, and the capital controls would go.

"The ECB will press the button," he said.

(Additional reporting by Lefteris Karagiannopoulos in Athens, Mike Dolan in London, Michelle Martin, Madeline Chambers and Gernot Heller in Berlin, Anna Yukhananov in Washington; Writing by Paul Taylor and James Mackenzie; Editing by Peter Graff, Gareth Jones, Simon Cameron-Moore)