“There is no sense in horizontal cuts… we must find solutions that do not further expand poverty and unemployment,” Werner Faymann said after a meeting with Greek Prime Minister Alexis Tsipras in Athens.
Faymann has generally been sympathetic to Greece's arguments and has argued in favour of a five-year plan to “give hope back” to the Greeks.
Tsipras on Wednesday said his government had gone as far as it could in meeting the demands of the creditors for tax hikes and pension reform.
“Our proposals fully safeguard the fiscal targets the institutions set for 2015-2016,” he said.
The PM said he was prepared to shoulder the political cost of a compromise deal in Greece's parliament.
But he warned the creditors that insisting on pension cuts would scupper all hope for a default-saving agreement and they would have to accept the burden of the consequences.
“There is no room for further cuts without affecting the core of the (pension) system,” he said.
“This insistence on cutting pensions is incomprehensible … if Europe insists on this incomprehensible fixation … it must accept the cost of a development that will benefit no one in Europe,” he warned.
The Greek central bank warned that the country could crash out of the eurozone and even the European Union if it fails to reach a bailout deal with international creditors.