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BRUSSELS (Reuters) - Greece agreed on Thursday to talk to its creditors about the way out of its hated international bailout in a political climbdown that could prevent its new leftist-led government running out of money as early as next month.
Prime Minister Alexis Tsipras, attending his first European Union summit, agreed with the chairman of euro zone finance ministers, Jeroen Dijsselbloem, that Greek officials would meet representatives of the European Commission, the European Central Bank and the IMF on Friday.
"(We) agreed today to ask the institutions to engage with the Greek authorities to start work on a technical assessment of the common ground between the current program and the Greek government's plans," Dijsselbloem tweeted. This, he said, would pave the way for crucial talks between euro zone finance ministers next Monday.
The shift by Tsipras marked a potential first step towards resolving a crisis that has raised the risk of Greece being forced to abandon the euro, which could spark wider financial turmoil. A Greek official in Athens said it was a positive move towards a new financial arrangement with creditors.
It came less than 24 hours after euro zone finance ministers failed to agree on a statement on the next procedural steps because Athens did not want any reference to the unpopular bailout or the "troika" of lenders enforcing it.
Tsipras won election last month promising to scrap the 240 billion euro ($273 billion) bailout, end cooperation with the "troika", reverse austerity measures that have cast many Greeks into poverty and negotiate a reduction in the debt burden.
The procedural step forward came after the ECB's Governing Council extended a cash lifeline for Greek banks for another week, authorizing an extra 5 billion euros in emergency lending assistance (ELA) by the Greek central bank. The council decided in a telephone conference to review the program on Feb. 18.
Timing the review right after euro zone finance ministers meet again next week keeps Athens on a short leash.
The ECB authorized the temporary funding expedient for banks last week when it stopped accepting Greek government bonds in return for liquidity.
Arriving for his first European Union summit, Tsipras told reporters: "I'm very confident that together we can find a mutually viable solution in order to heal the wounds of austerity, to tackle the humanitarian crisis across the EU and bring Europe back to the road of growth and social cohesion."
Chancellor Angela Merkel, vilified by the Greek left as Europe's "austerity queen", said Germany was prepared for a compromise and finance ministers had a few more days to consider Greece's proposals before next Monday's meeting.
"Europe always aims to find a compromise, and that is the success of Europe," she said on arrival in Brussels. "Germany is ready for that. However, it must also be said that Europe's credibility naturally depends on us respecting rules and being reliable with each other."
The two leaders came face-to-face for the first time in the EU Council chamber. According to Greek aides, a smiling Merkel congratulated Tsipras on his election and said: "I hope we will have good cooperation despite the difficulties." Tsipras smiled back and replied: "I hope so."
Greek officials said no private meeting was planned between the two during the one-day EU summit. They insisted to Greek reporters that Tsipras had not agreed to deal with the "troika" but with a body called the Eurogroup Working Group.
Other leaders said it was up to Greece to respect budget discipline and economic reform commitments made by previous governments if it wanted continued aid.
The two sides remain far apart on the subject of Greece's future funding, fiscal and economic policies.
Finance Minister Yanis Varoufakis has proposed swapping euro zone loans for long-dated GDP-linked bonds that would pay interest as the economy recovers, and ECB holdings of Greek debt for interest-bearing perpetual bonds with no repayment deadline.
ECB policymaker Jens Weidmann, head of Germany's Bundesbank, said the official loans already had long maturities, low interest rates and in some cases an interest repayment moratorium, so rescheduling would not help Greek finances in the short term.
Greece should only receive more support if it complies with its existing agreements, he said, adding that a relaxation of Greek targets would be "counter-productive" to restoring investor confidence.
ECB executive board member Peter Praet said the central bank would apply its ELA rules to Greece. "It is key that the banks benefiting from emergency liquidity assistance remain solvent," he told the Financial Times.
His comments appeared to signal that the central bank could cut the cash lifeline if Greece failed to reach a deal with its creditors before the bailout expires at the end of this month.
That would expose Greek banks to a risk of capital flight and collapse, which analysts say could in turn trigger a Greek exit from the euro zone.
Highlighting the precariousness of Greece's position, tax revenues fell about 1 billion euros short of the budget target in January as Greeks held off payments before the Jan. 25 election, anticipating that the new leftist government would scrap an unpopular property levy.
A Greek official played down the threat to the banking system if the ECB were to cut off funding after Feb. 28.
"If we have a conclusion that says there is a program in place, or if we are close to an agreement, no liquidity problems will exist," he said.
The euro zone, the ECB and IMF are insisting on firm conditions for any "bridge" financing. Other governments, including Ireland, Portugal and Spain, which have had to seek help under tough conditions, are also keen their own voters do not see Tsipras winning a better deal than they did.
EU officials play down the risk of Greece being forced out of the euro zone, something Tsipras and most Greeks do not want and which could send destabilizing ripples across the bloc as it faces a confrontation with Russia over Ukraine.
However, the politics of the Greek debate are difficult.
"The real risk in Athens seems to be that Tsipras has raised expectations to such an extent that he could find it extremely difficult to back down from his rhetoric and strike a deal which the rest of the Eurozone could accept," Berenberg Bank economists wrote in a note on Thursday.
($1 = 0.8779 euros)
Additional reporting by Jan Strupczewski, Alastair Macdonald, Foo Yun Chee, Robin Emmott, Tom Koerkemeier, Ingrid Melander, Barbara Lewis, Adrian Croft, Philip Blenkinsop and Julien Ponthus in Brussels, Jeremy Gaunt, Lefteris Papadimas and Angeliki Koutantou and Deepa Babington in Athens; Writing by Alastair Macdonald and Paul Taylor; editing by David Stamp, Sophie Walker and Mark Trevelyan