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Greece wants Europe's bailout fund to pay maturing bonds

ATHENS (Reuters) - Greece has proposed to its international lenders that Europe's bailout fund pay back maturing Greek government bonds held by the European Central Bank as a way to overcome a funding crunch, Finance Minister Yanis Varoufakis said on Monday.

Athens could then pay the European Stability Mechanism (ESM), at a later date, Varoufakis told the annual assembly of the Greek Industrial Federation.

"We are proposing, in the last period, what many specialists are proposing internationally: for the ESM to intermediate, to pay the ECB and then the Greek state can repay the ESM over the long term after an agreement with our lenders," he said.

Greece needs to strike a deal with its creditors by the end of the month to stay afloat, the government said on Monday.

Varoufakis said that about 27 billion euros (17 billion pounds) of Greek bonds held by the ECB that will have to be redeemed starting in July and August intensify the country's funding gap and also block Greece from taking part in the ECB's bond-buying programme, known as quantitative easing.

"We could rationalize our debt more, connecting the interest rate payments with the GDP growth rate, shielding in this way the debt viability from the economic cycle," Varoufakis said.

(Reporting by Lefteris Papadimas, writing by George Georgiopoulos, editing by Deepa Babington and Susan Fenton)