New Greek deal in sight as Germany backs down
Germany is at last bowing to pressure as a chorus of countries and key institutions demand debt relief for Greece, in a shift that could break the five-month stalemate and avert a potentially disastrous rupture of the monetary union at this Sunday's last-ditch summit.
In a highly significant move, the European Council has called on both sides to make major concessions, insisting that the creditor powers do their part as the radical Syriza government put forward a new raft of proposals on economic reforms last night.
The head of the eurogroup, Jeroen Dijsselbloem, confirmed that it had received the new proposals from the Greek government two hours before the deadline expired last night.
"The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors," said Donald Tusk, the European Council's president.
This is the first time the European institutions have acknowledged clearly that Greece's public debt - 180pc of GDP - can never be repaid and that no lasting solution can be found until the boil is lanced.
Any such deal would give Greek prime minister Alexis Tsipras a prize to take back to the Greek people, after 61pc of them voted last weekend to reject austerity demands.
While he would still have to deliver on tough reforms and breach key "red lines", a debt restructuring of sufficient scale would probably be enough to clinch a deal, and allow Mr Tsipras to return to Athens as a conquering hero.
German Chancellor Angela Merkel said "a classic haircut" was out of the question but tacitly opened the door to other forms of debt restructuring, conceding that it had already been done in 2012 by stretching out the maturities.
The contours of a potential deal on Sunday are starting to emerge. Syriza has requested a three-year package of loans from the eurozone bail-out fund - perhaps worth as much as €60bn - and is reportedly ready to give ground on tax rises and pension cuts.
Germany's subtle shift in position comes as the US, France, and Italy join in a united call for debt relief, buttressed by a crescendo of emphatic statements by Christine Lagarde, the head of the IMF.
"Greece is clearly in a situation of acute crisis, which needs to be addressed seriously and promptly. We remain fully engaged in order to find a solution to restore stability, growth and debt sustainability," said Ms Lagarde.
A report by the IMF said a debt haircut of 30pc of GDP "would be required" to meet the original debt targets agreed in 2012. This could be achieved by stretching out the maturities of bonds to 40 years and lowering the interest rate, sparing eurozone governments the political pain of having to crystallise direct losses for their taxpayers.
The US has clearly lost patience with the Europeans and is now bringing its huge diplomatic power to bear, fearing that mistakes in Greece could lead to a fiasco and serious damage to the Nato alliance.
"Greece's debt is not sustainable," said US Treasury Secretary Jacob Lew. "It's a mistake for the European economy, the global economy, to take the risks that are involved with an uncontrolled crisis in Greece."
Mr Lew said the two sides were only €2bn apart when talks broke down. (© Daily Telegraph, London)