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Greece to seek loan extension from sceptical euro zone

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* Athens to use vital EU wording to request extension -newspaper

* Greek bailout deal due to expire on Feb. 28

* State faces running out of cash by late March – source

* ECB raises emergency funding for Greek banks only modestly (Adds Kathimerini report)

By Lefteris Papadimas and George Georgiopoulos

ATHENS, Feb 19 (Reuters) – Greece is expected to ask on Thursday for an extension to its euro zone loan agreement skirting tough bailout conditions to avoid running out of cash within weeks, but it must overcome resistance from sceptical partners led by Germany.

With the EU/IMF bailout programme due to expire in little more than a week, the government of leftist Prime Minister Alexis Tsipras urgently needs to secure a financial lifeline to keep the country afloat beyond late March.

Athens is expected to submit a request to extend the loan agreement for up to six months, boosting hopes for a last minute compromise to avert a Greek bankruptcy and exit from the euro zone. But Athens still rejects the austerity requirements that have been attached to the loans as part of the bailout package.

“We are doing everything to reach a mutually beneficial agreement. Our aim is to conclude this agreement soon,” government spokesman Gabriel Sakellaridis told Skai TV. “We are trying to find common points.”

Conservative daily Kathimerini said the government is expected to seek an extension to the so-called Master Financial Assistance Facility Agreement with the euro zone, under which aid is disbursed on condition that Athens fulfills bailout obligations. That could satisfy both sides as it would mean Athens can avoid saying “extension of the existing program” and the creditors can avoid using the term “loan agreement.”

EU paymaster Germany and fellow euro zone governments have insisted no loan deal without the full bailout is on the table, and Athens must seek an extension to the entire programme, which Tsipras promised to ditch when he was elected last month.

German Finance Minister Wolfgang Schaeuble has poured scorn on suggestions that Athens could negotiate an extension of euro zone funding without making any promises to push on with budget cuts and economic reforms.

But on Wednesday he indicated there may be some possibility of a compromise. “Our room for manoeuvre is limited,” he said during a debate in Berlin, adding, “We must keep in mind that we have a huge responsibility to keep Europe stable.”

Greek Finance Minister Yanis Varoufakis expressed confidence on Wednesday that euro zone finance ministers would approve the Athens government proposal in a teleconference on Friday.

“The application will be written in such a way so that it will satisfy both the Greek side and the president of the Eurogroup,” he said, referring to the head of the group of euro zone finance ministers.

FINANCES IN PERIL

Greece’s finances are in peril. It is burning through its cash reserves and could run out of money by the end of March without fresh funds, a person familiar with the figures said.

Athens had enough to repay a 1.5 billion euro instalment to the International Monetary Fund next month but would struggle to pay public sector salaries and pensions in April.

Likewise its banks are dependent on emergency funding controlled by the European Central Bank in order to pay out depositors who have been withdrawing their cash. The ECB agreed on Wednesday to raise a cap on funding available under its Emergency Liquidity Assistance scheme to 68.3 billion euros (US$78 billion), a person familiar with the ECB talks said.

That was a rise of just 3.3 billion euros, less than Greece had requested. The modest increase raises the pressure for a compromise at the Eurogroup. One senior banker said it would be enough to keep Greek banks afloat only for another week if present outflow trends persist.

The Frankfurter Allgemeine Zeitung (FAZ) – a conservative German newspaper that often takes a stance similar to Germany’s Bundesbank – said on Thursday the ECB would feel more comfortable if Greece introduced capital controls to stem the outflow from banks, citing central bank sources.

Finance ministers of the 19-nation currency bloc rejected Greek proposals to avoid the bailout conditions at a meeting on Monday. Whether they accept its new request as a basis to resume negotiations will depend on how it is formulated, an EU source said. The wording has to match EU legal texts to win approval in several euro zone parliaments.

Tsipras said on Wednesday talks were at a crucial stage and his demands for an end to austerity were winning backing.

In a sign of concern in Washington at the financial risks to a strategically located NATO ally, U.S. Treasury Secretary Jack Lew telephoned Varoufakis to urge Greece to strike a deal with the euro zone and IMF, warning that failure would lead to immediate hardship.

Lew said the United States would continue to prod all parties in the talks to make concrete progress, noting that uncertainty was “not good for Europe.”

The Athens government released documents indicating it was taking a more flexible line to placate euro zone creditors than its anti-bailout rhetoric at home has suggested. They showed Varoufakis had offered on Monday to accept some conditions on an extension to its loan agreement with a check-up by the European Commission at the end of the period.

German Chancellor Angela Merkel made clear on Wednesday that Greece would have to give as well as take in negotiations.

“If countries are in trouble, we show solidarity,” she said in a speech to conservative supporters, naming Greece and other euro zone countries that had to take bailouts during the debt crisis. But she added, “Solidarity is not a one-way street. Solidarity and efforts by the countries themselves are two sides of the same coin. And this won’t change.” (Additional reporting by Renee Maltezou and Deepa Babington in Athens, Jan Strupczewski in Brussels, Gernot Heller, Michael Nienaber and Caroline Copley in Berlin, Jason Lange in Washington and Paul Carrel in Frankfurt; Writing by David Stamp; Editing by Peter Graff and Paul Taylor)

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Greece to seek loan extension from sceptical euro zone

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