A new proposal for budget cuts and policy overhauls from Greek Prime Minister Alexis Tsipras was dismissed by European officials Wednesday as insufficient to revive negotiations over a new bailout for Athens.
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Officials said the proposal, received Tuesday night by the representatives of Greece's official lenders, appears to fall short of creditor demands. Greece defaulted on a EUR1.55-billion ($1.72-billion) repayment to the International Monetary Fund on Tuesday.
German Chancellor Angela Merkel reacted coldly to the proposal, emphasizing that Berlin would maintain its tough stance and was prepared for a fight.
"A compromise at any cost would only be a result in order to get a result, only because one isn't able to live with a conflict because one is afraid to fight the battle," Ms. Merkel said. "There can't be any doubt: If Europe lost its ability to find a compromise in which advantages outweigh disadvantages, then Europe would be lost."
According to people familiar with the thinking in Berlin, this week's turmoil, including the closure of Greek banks, the expiration of the bailout program, and the decision to call a referendum, have changed the circumstances too much, and bailout talks can no longer simply be resumed from where they were when they broke down last Friday.
Ms. Merkel and other senior officials have said that Germany would discuss a new bailout request only after the referendum had taken place or if Greece called it off.
German Finance Minister Wolfgang Schäuble said that Greece's left-wing government had to provide more clarity on its demands before negotiations about further financial aid could resume. The letter sent Tuesday hadn't done that, he said.
"This is no basis for serious" negotiations, said Mr. Schäuble during a news conference on the government's 2016 budget. "First of all, Greece has to declare what it wants."
Markets were nevertheless cheered by the latest offer. The Stoxx Europe 600 opened higher and extended gains sharply. Bonds yields fell in Italy and Spain, highly indebted countries that in past years were seen as vulnerable to spillover from Greece.
The Greek premier's proposals was contained in a two-page long letter dated June 30 to the heads of the three institutions that oversee the bailout--European Commission President Jean-Claude Juncker, European Central Bank chief Mario Draghi and IMF Managing Director, Christine Lagarde.
In the letter seen by The Wall Street Journal, Mr. Tsipras offered to accept a draft proposal disclosed on the commission's website this weekend with a handful of changes. The commission said the proposal was never presented to the Greeks because Mr. Tsipras's referendum call had effectively aborted the negotiations.
Mr. Tsipras says Athens will accept the reforms of Greece's sales tax with the exception of a special 30% discount for Greek islands, many of which are in remote and difficult-to-supply regions, which he insisted be maintained.
In the letter, whose existence was first reported by the Financial Times, Mr. Tsipras also requests a move of the retirement age to 67 by 2022 to begin in October, rather than immediately, and that a supplementary payment to the poorest pensioners be phased out more slowly.
European official said the proposal didn't match what creditors were seeking. "He repeated the same-old known issues," an EU official said. It's "too little, too late."
Another official described the proposals from Mr. Tsipras as a weakening of the measures that have been discussed between negotiators from both sides and wouldn't be well received by the creditors.
A senior Greek government official said that the Greek government wasn't planning to send additional proposals with more concessions Wednesday. Mr. Tsipras is expected to make a statement on public television later in the day.
Eurozone finance ministers were to discuss the new Greek requests in a conference call in the late afternoon.
The EU's vice president for the euro, Valdis Dombrovskis, said a deal on a new bailout is possible before big new debt repayments are due, but stressed it would take some time. The next big payment is July 20, when EUR3.5 billion in Greek government bond held by the European Central Bank come due.
He stressed that capital controls and the uncertainty created by the expiration of the old rescue deal will make it harder for Athens to get its economy growing again. "Now much more damage is done and much more effort will be needed to restore the situation," Mr. Dombrovskis said.
He also said that the commission and other institutions involved in eurozone bailouts can't start negotiations on the terms, size and duration of a new aid deal before a decision from eurozone finance ministers to allow such talks. Some ministers, including Mr. Schäuble, need a positive vote in their parliaments before they can even agree to start talks on a new bailout.
Late Tuesday, Greek officials were also raising doubts over their plans for the referendum, in which the government had asked its citizens to vote against pension cuts and sales-tax increases. But a second senior Greek officials said it would move ahead.
"The negotiations will continue next week after the Greek people's decision," the official said.
Most Greeks plan to reject the creditors bailout terms though support for Greece to stick to austerity and secure its place in the eurozone is growing, a poll showed Wednesday.
In the first poll figures published since Mr. Tsipras shocked Europe by calling a vote on Sunday, 46% said they back the "no" vote. But support for the "no" vote had been much higher, at 57%, before Greek authorities imposed capital controls and closed banks.
The data, put together by pollster ProRata and published in the daily newspaper Efimerida ton Syntakton, showed that 37% of respondents backed "yes" vote. Support for the yes vote was just 30% before the decision to shut banks this week.
Andrea Thomas in Berlin contributed to this article.