By Renee Maltezou and Jan Strupczewski
ATHENS/BRUSSELS (Reuters) - Greek Prime Minister Alexis Tsipras said he was willing to accept unpalatable compromises to secure a deal with international creditors provided he gets debt relief in return, something that Germany refuses to countenance.
With Greece heading towards possible default and bankruptcy, he told his negotiating team before it took a counter-proposal to Brussels that without debt relief he would reject any settlement that isolates his country from the rest of Europe.
In little more than a fortnight, Athens must repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund with money it does not have.
Greek ministers arrived in Brussels on Saturday to resume negotiations on a cash-for-reforms deal with the EU and IMF creditors that ended in stalemate on Thursday.
The counter-proposal offering concessions on budget issues is designed to break the deadlock that is threatening Greece's future in the euro zone.
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Tsipras, who was elected in January on promises to end austerity, made it clear he was willing to give ground but with strings attached that German Chancellor Angela Merkel is unlikely to accept.
"If we have a sustainable solution, regardless of how difficult the compromise is, we will bear the burden because the only criteria are exiting the crisis and the bailouts," a government official quoted Tsipras as telling the ministers on Friday night before they headed to Brussels.
Tsipras used the term "sustainable solution" to refer to a long-standing demand for large parts of Greece's mountainous debts to be written off or rescheduled - something he believes is vital if the Greek economy is to start getting back on its feet after a six-year depression.
Much of that debt is owed to Germany, the biggest contributor to Greece's 240 billion euro bailouts. Any acceptance by Merkel that the money might never be paid back would almost certainly create uproar among the country's politicians and taxpayers.
EU officials question Greek assertions that the debt is asphyxiating the economy. The government's immediate problems are with repaying loans from the IMF and European Central Bank while privately held debt is relatively modest following a major write-down in 2012.
The bulk of the debt is European bailout loans but Athens does not have to start repaying these until 2023. The debt is accruing interest, meaning that it will grow over the next eight years, but the annual rate is below what Italy pays and in any case the interest payments also begin only in 2023.
Nevertheless, Tsipras appears to be seeking a gesture on debt from Europe that will allow him to sell a harsh deal to his radical left Syriza party and Greek voters.
Tsipras signalled that without debt relief, he would reject any deal involving curbs on the right of Greek workers to bargain collectively on pay - something that union members elsewhere take for granted.
"If Europe desires the split and the continuation of subjugation, we will make the big decision to say 'no' and fight the battle for the dignity of the people and our national sovereignty," he said.
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Government spokesman Gabriel Sakellaridis gave more details on the negotiating stand, such as on the primary surplus - a budget balance that excludes debt repayments - and the creditors' demands for yet more of the austerity that has already radically reduced Greeks' living standards.
"The government seeks a solution which will include a debt relief, low primary surpluses, no wage and pension cuts, an investment package and restarting the economy," he told Agora newspaper.
"Debt relief is not an ideological obsession or a symbolic move, but a necessary condition to relieve people and jumpstart the economy," he added.
The Greek delegation, led by the deputy prime minister and chief negotiator, met European Commission and ECB officials in Brussels for low-key talks late on Saturday afternoon.
On Friday, EU officials said representatives of euro zone member states had formally discussed a series of scenarios, including for the first time one which involved a possible Greek default on the repayment to the IMF due by the end of June.
Athens, which attended a meeting of the official-level Euro Working Group on Thursday, has denied that any such scenario had come up.
Defaulting on a repayment to the IMF, the global lender of last resort, would have profound consequences. The ECB would probably have to halt emergency lending that supports Greek banks, which have suffered huge withdrawals by anxious savers.
Athens would then probably have to impose capital controls on deposit withdrawals and payments abroad in a series of events that would put Greece's future in the euro in grave danger.
But Sakellaridis dismissed such a scenario. "The Greek banking system is steady and solvent, which is being proven every day. Any other theories are just part of the negotiation, a form of (mainly psychological) pressure."
Finance Minister Yanis Varoufakis proposed a debt swap involving the ESM, Europe's bailout mechanism, to help Athens meet a further 6.7 billion euros that it must repay to the ECB in July and August.
Varoufakis played down any possibility of Greece being forced out of the euro. "It is also possible that a comet will hit planet Earth," he told BBC radio. "(But) I don't believe that any sensible European bureaucrat or politician will go down that road."
Asked if the EU and IMF were bluffing, he said: "I hope they are."
($1 = 0.8875 euros)
(Additional reporting by Costas Pitas in London; Writing by David Stamp; Editing by Alison Williams and Digby Lidstone)