The euro fell 0.1 per cent to 1.1386 against the dollar this afternoon after Germany rejected a request from Greece to extend its €172bn bailout programme by another six months, saying the request "does not meet the criteria agreed upon in the Eurogroup on Monday".
Martin Jaeger, a spokesman for Germany's finance minister, said the letter sent by Greek finance minister Yanis Varoufakis was "not a substantive proposal for a solution".
"It aims at bridge financing without fulfilling the demands of the programme," he added.
The rejection came as a surprise - shortly before it happened, the European Commission had called the request "positive".
But Greece was always going to have to make big concessions to impress Germany, whose finance minister, Wolfgang Schaeuble, has previously said he will take a hard line on negotiations. While Greece wanted to be able to decide on its own austerity programme, Schaeuble had said it must stick to the conditions of the bailout previously agreed.
Greece needs to arrange additional financial support for when its bailout programme expires at the end of next week.
It is thought the country will need to have measures agreed by the end of this week, so its Eurozone partners could have them approved by their parliaments in time.
Another Eurogroup meeting had been called for tomorrow for Eurozone finance ministers to discuss Greece's request, although without German backing it is unlikely to be approved.
"Tomorrow's Eurogroup has only two choices: to accept or to reject the Greek request. This will show who wants to find a solution and who doesn't," said a Greek official.
The FTSE 100 was the only European market to fall, dropping 0.09 per cent, although markets in Germany and France reversed gains made earlier in the day.