Deadline puts Greece's euro membership, debt on the table

[ATHENS] Greece was to submit a detailed bailout request to its eurozone partners Thursday in a last-ditch effort to save its collapsing economy and its place in the euro, with the EU president urging creditors to compromise on debt relief.

The threat hanging over Greece's eurozone membership represents an unprecedented test of EU cohesion.

The radical left government of Greek Prime Minister Alexis Tsipras has until midnight Brussels time (2200 GMT) to submit a plan acceptable to its partners, especially sceptical Germany. In return, he is asking for billions of euros in loans to keep the country afloat.

EU President Donald Tusk said Greece's creditors must make a "realistic" proposal for managing the country's crushing 320-billion-euro debt if Athens delivers a workable programme of reforms.

Leaders of the 28-nation European Union, including the 19 states that share the euro, are to hold a summit on Sunday billed as the "final deadline" to decide whether to save Greece.

The uncertainty is weighing on ordinary Greeks, panicked at the realisation that, by backing Mr Tsipras's 'No' in a referendum last weekend that soundly rejected creditors' austerity conditions, they have been brought to the brink of an exit from the euro, or "Grexit".

"I voted 'No' but I am for Greece staying in the eurozone," said Viviane, a worried 46-year-old secretary in an Athens lawyer's office, echoing a majority view.

"This doesn't look good. I don't think the government will reach a deal with the creditors by Sunday," sighed Stefanos, an unemployed 32-year-old.

"I want an agreement and no matter if it contains austerity measures - that is still better than going back to the drachma," he said.

Tsipras has vowed to submit "concrete proposals, credible reforms, for a fair and viable solution". He is ignoring hardliners in his Syriza party lobbying to resist any more austerity no matter the cost.

Early Thursday, Mr Tsipras held a telephone conversation with French President Francois Hollande, one of the very few eurozone leaders sympathetic to his predicament.

The new bailout is the third Greece will have asked for in the past five years.

It has already received 240 billion euros in loans from the two previous rescue plans, the last of which expired on June 30. In 2012, creditors forgave 107 billion euros of its debt.

But all that has proved insufficient, with Greece struggling through a depression that has shrunk its output by a quarter and sent unemployment rocketing to 26 per cent. Tsipras has repeatedly insisted the debt load needs to be cut again.

Tusk said after also speaking with Mr Tsipras that a "realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors".

The United States and the International Monetary Fund (IMF) share that view. US President Barack Obama has urged Europe to not cut Greece adrift.

But Greece has an uphill battle to convince most of the eurozone nations.

Germany, the Netherlands and several Nordic and eastern European states are increasingly hostile to another rescue.

They insist talk of debt relief can only happen after Greece proves it can stick to reforms it has so far resisted - particularly on taxes and its costly pension system.

While Europe has no provision under its treaties to force a country out of the "irreversible" monetary union, some legal advisers say it could be made to happen by kicking an errant state out of the European Union.

Tusk has called the next few days "really and truly the final wake-up call for Greece and for us".

A demonstration of Greeks calling for their country to remain in Europe was to take place in central Athens late Thursday.

Across Greece, hardship is piling up under capital controls imposed after Mr Tsipras on June 27 called his referendum.

The closure of banks and rationing of cash from ATMs was gradually bringing the Greek economy to a standstill. A ban on transferring money out of the country has isolated Greece from foreign suppliers of everything from food to medicine.

Last-minute bookings by foreign visitors to Greece - usually a hotspot summer vacation destination - have plunged by 30 per cent, dealing a serious blow to a sector that accounts for a fifth of the economy.

Greek authorities have repeatedly pushed back the day when banks and the Athens stock market should reopen. The latest date given is next Monday.

The head of Greece's bank association, Louka Katseli, has reassured it was not "foreseen" that a portion of bank deposits would be seized to recapitalise the depleted financial system. But many were fearful it would happen anyway, as occurred in Cyprus two years ago.

International markets appeared generally sanguine about the Greek crisis. European stocks rose on Thursday while the euro was trading at $1.103.

"Developments in Greece have, so far, not resulted in any significant contagion," the IMF said on Thursday.

But it warned that the recent rise in interest rates on the sovereign bonds in "some euro area economies" could signal larger problems ahead.

"Some risks of a reemergence of financial stress remain," the IMF said, revising downwards its 2015 global growth forecast to 3.3 per cent, from 3.5 per cent.

Greece has asked the eurozone's crisis fund, the European Stability Mechanism, to give it a three-year loan for an unspecified amount, but no reply has yet been made public.

AFP