(Adds Merkel/Tsipras greeting, markets)
* ECB extends Greek bank funding on short leash
* Tsipras in Brussels for EU summit after debt talks stall
* Euro zone finance ministers unable to agree common position
* Merkel says Germany ready for compromise, respecting rules key
* Next talks on Monday, less than two weeks before bailout expires
By Renee Maltezou and John O‘Donnell
BRUSSELS/FRANKFURT, Feb 12 (Reuters) - The European Central Bank raised the pressure on Greece to extend an international bailout deal on Thursday, as new leftist Prime Minister Alexis Tsipras told EU leaders austerity was killing his economy and an alternative had to be found.
After euro zone finance ministers failed to agree a joint statement about a way forward on Greece’s debt crisis, the ECB’s Governing Council held a short-notice teleconference to discuss how long it could continue to keep Greek banks afloat.
The ECB agreed to increase Emergency Liquidity Assistance (ELA) from the Greek central bank by about 5 billion euros to 65 billion euros and to review the policy again on Feb. 18, Greek central bank and government officials told Reuters. The timing of the review right after euro zone finance ministers meet again keeps Athens on a short leash.
The ECB authorised the temporary expedient last week when it stopped accepting Greek government bonds in return for funding.
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 they meet next Monday.
“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.
EU diplomats said the leaders would receive a briefing from the chairman of euro zone finance ministers, Jeroen Dijssebloem, on Wednesday’s inconclusive talks and Tsipras would have a chance to address them over dinner but there would be no extended discussion on Greece.
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.
ECB executive board member Peter Praet said the ECB would apply its existing 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 240 billion euro 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, sparking wider financial turmoil.
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.
Euro zone finance ministers in the Eurogroup will try again on Monday to bridge their differences, but at Greek insistence, there will be no preparatory talks between officials from Athens and the European Commission, the IMF and the ECB. Tsipras has vowed no longer to cooperate with the “troika” of lenders.
A Greek official said the hard left Syriza party leader, elected on a tide of public anger against austerity last month, was determined to put the Greek crisis at the centre of the Brussels summit. However other EU officials said it would be largely devoted to the conflict between Ukraine and Russia.
Merkel and French President Francois Hollande flew in from Minsk after brokering an uncertain ceasefire in Ukraine in overnight talks with Russian President Vladimir Putin and his Ukrainian counterpart, Petro Poroshenko.
Greek Finance Minister Yanis Varoufakis refused to sign up to a joint statement at Wednesday’s Eurogroup meeting because it referred to the bailout and its continuation, he said.
“HUNG UP ON WORDING”
The Greek official sought to depict the difference as largely semantic, saying: “We will try to reach an agreement and explain that we shouldn’t get hung up on wording.”
Playing down the threat to the banking system if creditors cut off funding after Feb. 28, the official said: “If we have a conclusion that says there is a programme in place, or if we are close to an agreement, no liquidity problems will exist.”
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 destabilising 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. (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 and Sophie Walker)