Germany is pushing for Greece to relinquish control over its budget policy to European institutions as part of discussions over a second rescue package, a European source told Reuters on Friday.
"There are internal discussions within the Euro group and proposals, one of which comes from Germany, on how to constructively treat country aid programs that are continuously off track, whether this can simply be ignored or whether we say that's enough," the source said.
The source added that under the proposals European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy.
"This could be carried out even more stringently through external expertise," the source said.
The Financial Times said it had obtained a copy of the proposal showing Germany wants a new euro zone "budget commissioner" to have the power to veto budget decisions taken by the Greek government if they are not in line with targets set by international lenders.
"Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time," the document said.
Under the German plan, Athens would only be allowed to carry out normal state spending after servicing its debt, the FT said.
"If a future (bail-out) tranche is not disbursed, Greece cannot threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement," the FT quoted the document as saying.
The German demands for greater control over Greek budget policy come amid intense talks to finalize a second 130 billion-euro rescue package for Greece, which has repeatedly failed to meet the fiscal targets set out for it by its international lenders.