ATHENS (Reuters) - European lenders should reinstate debt relief for Greece and give it leeway to make a Christmas payout to pensioners, France said on Thursday, exposing divisions within the euro zone over how its most indebted state should manage its finances.
Greece's creditors in the bloc granted it short-term debt relief in early December, but the euro zone's ESM bailout fund suspended that agreement after Prime Minister Alexis Tspiras unilaterally promised poor pensioners 600 million euros because Greece exceeded its 2016 primary surplus target.
Speaking in Brussels ahead of an EU summit, French President Francois Hollande said the EU should respect the euro zone finance ministers' decision to offer debt relief, which his Finance Minister Michel Sapin said only the same group could overturn.
The European Commission also criticised the lenders' decision, with Economic and Monetary Affairs Commissioner Pierre Moscovici saying there was no reason for them to question the debt relief deal.
The long-awaited deal would reduce Greece's public debt by 20 percentage points of GDP by 2060.
The ESM put it on hold on Wednesday until the impact of Tsipras's handout - which failed to stave off protests by pensioners planned for Thursday against repeated cuts to their monthly payments since 2010 - could be assessed. That stance was supported by Berlin.
Tsipras, who is trailing in opinion polls, has defied criticism, saying this week that said Athens will "not seek anyone's permission" on how to spend extra money. Greek lawmakers were set to vote on the handout on Thursday.
Speaking in Brussels on a day when Greek bond yields spiked, he urged European leaders to support a debt "breakthrough without blackmail."
Back at home, his surprise bonus has failed to impress pensioners, who have protested several times in the capital against cuts. About 40 bus loads were due Athens for another rally later on Thursday.
"The benefit will help, but only temporarily," said a 70-year-old pensioner who gave his name as Costas. "I can't make ends meet. I feel lucky I'm all alone and don't have family to support."
Others dismiss the payout as a political gimmick.
"We're being duped by the lenders and the Greek governments," said Yorgos Kallergis, a 72-year-old pensioner who said his pension has been slashed by 65 percent during the crisis.
The Greek government has also irked its lenders by retaining a 30 percent discount on levels of value-added tax charged on some Greek islands.
Writing by Karolina Tagaris; editing by John Stonestreet