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Update: Germany, in shift, says Greek referendum on reform could help

[BRUSSELS] EU paymaster Germany said on Monday it could make sense for Greece to hold a referendum on painful economic reforms under negotiation with its creditors, changing tack as Berlin's own lawmakers bridle at further aid for Athens.

Euro zone governments have previously opposed such a vote, saying there is no time and it could destabilise financial markets and trigger a run on struggling Greek banks.

When former Prime Minister George Papandreou surprised EU partners by proposing a referendum in 2011 at the height of the euro zone debt crisis, he was summoned to emergency talks with leaders of France and Germany and told bluntly to drop the idea.

But with Greece fast running out of cash and desperate for a deal to avert a default and possible exit from the euro zone, German Finance Minister Wolfgang Schaeuble said securing public backing for the necessary sacrifices might be useful.

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A referendum could make it easier for leftist Greek Prime Minister Alexis Tsipras to climb down from election promises that are making a cash-for-reform deal hard to achieve. "If the Greek government thinks it must hold a referendum, then let it hold a referendum," Mr Schaeuble said on arrival at a meeting of euro zone finance ministers. "That might even be a helpful measure for the Greek people to decide whether it is ready to accept what is necessary, or whether it wants something different." There was no immediate reaction from Greece, but finance ministry officials said Athens had made a crucial payment of 750 million euros to the International Monetary Fund a day before it falls due on Tuesday, easing market fears of a default.

The ministers spent less than an hour hearing a progress report on the slow-moving negotiations with representatives of the IMF, European Commission and European Central Bank.

EU officials said the ministers would issue a short statement acknowledging progress in the talks but saying more time and effort are needed to bridge the remaining gaps.

Sources familiar with ECB thinking said there was still too little progress on core issues and too much uncertainty for the bank to allow the Greek government to sell more short-term Treasury bills to ease its funding crunch.

Hinting at growing difficulties in persuading conservative German lawmakers to go on funding Greece, Schaeuble said it was unrealistic to think any parliament in Europe would agree without the backing of the IMF.

Greece's leftist-led government has accused the global lender of setting tougher targets than the European creditors on pension and labour reforms and a primary fiscal surplus. The three institutions have denied any internal differences.

Finance Minister Yanis Varoufakis held private talks with Schaeuble before the Eurogroup session but neither side commented on the meeting.

Mr Schaeuble said earlier there had been little or no progress on substance in the negotiations. Any release of frozen bailout funds depended on representatives of the three creditors certifying implementation of the reforms, not just promises.

A senior EU official said there has been no breakthrough on the central sticking points of pension and labour market reforms and budget targets for this year and next.

Euro zone officials believe Greece has scraped together enough money, notably by commandeering cash reserves of local authorities and pension funds, to meet its payment obligations until the end of May.

They say the real deadline for a deal is end-May to enable parliamentary approval in some euro zone countries, notably Germany, in time to release the remaining 7.2 billion euros in bailout funds before the programme expires at the end of June.

Elected in January on promises to end austerity and scrap the international bailout, the government is refusing to agree to pension cuts, raise the retirement age, or ease layoffs in the private sector. It is also at odds with creditors on the size of the primary budget surplus, which excludes debt repayments, and on longer-term financing.

Mr Varoufakis was sidelined from the conduct of the talks after he alienated fellow ministers with outspoken Mr far of what he calls his popular mandate.

Two-year Greek bond yields edged up tobalked at crossing the "red linesTsipras shook up the negointerviews and economics lectures, climaxing with a clash last month at a Eurogroup meeting in Riga.

tiating team and made some concessions on restarting privatisations and harmonising value-added tax. But he has so " around 21.5 per cent on Monday as nervous investors weighed the risk of a default. Italian, Spanish and Portuguese bond yields also ticked up.

A Reuters poll of traders, taken before the IMF repayment, found that the chance of Greece leaving the euro zone was less than one in four, down from a 40 per cent possibility they assigned two weeks ago.