Greek crisis: Move on debt deal inches closer

There were hopes on Thursday night that a Greek deal could be in the offing, as the Greek government submitted fresh bailout proposals to EU institutions, seeking a €53 billion loan package from creditors.

Pension reforms and changes to the VAT system are understood to have formed part of the new bailout proposal submitted by the Greek government, just ahead of the midnight deadline.

It is understood that the Greek government is promising to push ahead with the pension and VAT changes next week to signal to its creditors that it is serious about reform.

Earlier, the Greek cabinet signed off on the new proposals, with expectations that the Greek Parliament could be asked to vote on the proposed reform measures as early as Friday, in a bid to demonstrate to creditors Greece’s determination to implement reforms.

With a series of high-level meetings scheduled for this weekend in Brussels, the Greek government received a boost on Thursday, after European Council President Donald Tusk said that a "realistic proposal from Athens" should be matched by "realistic proposal from creditors on debt sustainability".

His unexpected comments – the first from a senior EU figure – followed a phone conversation with Greek prime minister Alexis Tsipras.

Senior officials representing the 19 euro zone member states will consider Greece’s new reform plan on Friday, ahead of a scheduled eurogroup meeting of finance ministers in Brussels on Saturday.

Mr Tusk's intervention follows renewed calls from IMF managing director Christine Lagarde on Wednesday that Greece's debt burden should be addressed.

US treasury secretary Jack Lew also intervened to call for debt relief for Greece.

In a sign that Berlin could be open to the idea of debt relief, German finance minister Wolfgang Schauble said the issue could be discussed over the coming days, though he hinted that the impact of any measures would be minimal. “The room for manoeuvre through debt reprofiling or restructuring is very small,” he said.

Debt writedown

German Chancellor Angela Merkel also explicitly ruled out a debt writedown for Greece. “I have said that a classic haircut is out of the question for me and that hasn’t changed between today and yesterday,” she said, echoing comments she made on Tuesday in Brussels.

Speaking within hours of Mr Tusk’s comments, she said that Greece’s debt sustainability had already been addressed under previous bailouts.

Any bailout proposal for Greece would need parliamentary approval in up to six euro zone countries, including Germany. There were reports that the German parliament may be recalled next week to consider the issue.

But despite positive noises from Athens and Brussels on Thursday that a deal could be reached European Central Bank President Mario Draghi voiced concerns.

With the European Central Bank due to review its provision of emergency funding to Greek banks on Monday, German Bundesbank chief Jens Weidmann strongly criticised the ECB’s continued role in propping up the Greek banking sector, saying it was up to governments, not the central bank, to provide any aid to Athens.

“Central banks need to show where their limits lie,” he said. “It needs to be crystal clear that responsibility for further developments in Greece . . . lies with the Greek government and the countries providing assistance – not the ECB Governing Council.”