Eurozone gives Greece an ultimatum as bailout negotiations collapse
Greek Prime Minister Alexis Tsipras at the European Union headquarters in Brussels on Feb. 12, 2015. Photo by John Thys for Agence France-Presse.

Eurozone ministers handed Greece an ultimatum on Monday to request an extension to its bailout programme after crunch talks collapsed, deepening a bitter standoff that risks seeing Athens bid farewell to the euro.

Despite the acrimony, Greek Finance Minister Yanis Varoufakis said the different sides could come to an agreement on the bailout within the next two days, with the possibility of another make-or-break meeting on Friday.

"I have no doubt there is going to be an agreement in the end," Varoufakis said after the talks abruptly ended after only a few hours.

Eurogroup head Jeroen Dijsselbloem said Greece had the rest of the week to request an extension to the programme, which expires at the end of the month, challenging Athens to cave in on its dearly held position.

"Given the timelines we have... we can use this week but that is about it," said Dijsselbloem, who is also Dutch finance minister and a defender of austerity policies in the eurozone.

A Greek government source dismissed the demand to stick to its current bailout as "absurd" and accused Dijsselbloem of inserting a last-minute proposal that he knows Greek authorities will refuse.

"The insistence of certain people for the new Greek government to enforce the bailout is absurd and unacceptable," the source said.

The radical leftist Tsipras government is trying to win a huge overhaul to the terms of its 240 billion euro ($270 billion) bailout which it says has damaged the Greek economy after years of imposed austerity.

But Greece's 18 eurozone partners, led by the influential German Finance Minister Wolfgang Schaeuble, insist that any change to austerity terms must pass within the current programme.

- 'Reasonable path' -

"There's only one reasonable path, that of a technical extension with flexibilty... to take the Greek people into account," said French Finance Minister Michel Sapin.

Tsipras swept into power last month on a promise to tear up the bailout agreement, all the while keeping the country in the 19-member eurozone.

To meet that pledge, he wants the eurozone to ditch the current deal and to agree to short-term funding to buy the time needed to hammer out a new agreement, with lighter austerity conditions attached.

"I have no doubt in the next 48 hours Europe will come together so we can do the real work (towards a new programme)," Varoufakis said.

Greece's EU partners are infuriated that Athens may wriggle out of its commitments and demand instead that Greece extend the current programme and then talk about what happens afterwards.

"If the Greek authorities want to take that path, a meeting will take place Friday to confirm their decision," Sapin said.

EU Economic Affairs Commissioner Pierre Moscovici also urged Greece to bite the bullet.

"It is very important that the Greek government ask for an extension. It includes the legal basis on which we can work," Moscovici said.

In Athens, Tsipras' coalition partner Panos Kammenos, who heads the Independent Greeks party, said the country would not request an extension.

"We will not request any extension, we have a public mandate to go to the end. The Greeks together say no, we will not be blackmailed," Kammenos said on Twitter.

- Euro plummets -

At the height of the debt crisis in 2011-12 the possibility that Greece would crash out of the euro panicked world markets, and the worsened stand-off on Monday once again raised the possibility.

As news of the talks collapse spread, the euro fell sharply to $1.356 euros after markets had kept a wait-and-see attitude for most of the day. Earlier, the Greek stock exchange dropped by more than 4.0 percent.

The bailout standoff is the latest stage in a long-running crisis over Greece's huge debts, run up during years of overspending epitomised by the 2004 Athens Olympics.

In return for the two rescues, previous Greek governments agreed to a series of deep austerity measures and much-resented oversight by the EU, IMF and ECB "troika" to make sure it stuck to the bailout terms.

The bailouts kept Greece in the eurozone but it also left Athens with a debt mountain of 315 billion euros, about 1.75 times the size of its economy.