BRUSSELS, July 9: The European Union's chairman joined growing international calls for Greece to be granted debt restructuring as part of any new loan deal if it delivers convincing reforms to avert imminent bankruptcy.
The call was an implicit challenge to Germany, Athens' biggest creditor, which has so far ruled out any write-offs as illegal and taken a restrictive view of reprofiling the debt to help Greece over a major repayment hump this year.
Greek Prime Minister Alexis Tsipras was finalizing a tough package of tax hikes and pension reforms to send to euro zone authorities by midnight in a race to secure agreement at the weekend on a third financial rescue for his country.
European Council President Donald Tusk, who is to chair a special euro group summit on Sunday that will decide Greece's fate, hoped the plans would be concrete and realistic. "The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. Only then will we have a win-win situation," he said. "Otherwise, we will continue the lethargic dance we have been dancing for the past five months."
Failure to reach a deal on Sunday, including releasing some money to enable Athens to cover debt service over the next few weeks could lead to a collapse of Greek banks next week, sending the economy into freefall and possibly catapulting the country out of the euro zone.
If there is no agreement, all 28 European Union leaders will discuss measures to limit the damage from a Greek collapse, including humanitarian aid, possible border controls and steps to mitigate the impact on neighbors, EU officials said.
German Chancellor Angela Merkel said a classic "haircut" - a write-off of principal - was out of the question. She did not rule out other forms of debt relief such as extending loan maturities, lower interest rates or a longer moratorium on debt service payments.
International Monetary Fund chief Christine Lagarde and US Treasury Secretary Jack Lew both said on Wednesday that debt restructuring must be part of a viable solution to keep Greece in the euro zone.
Lagarde said any program would have to walk on two legs. "One leg is about significant reforms and fiscal consolidation ... And the other leg is debt restructuring, which we believe is needed in the particular case of Greece for it to have debt sustainability."
Just how uncertain the coming days are was highlighted when European Central Bank President Mario Draghi voiced highly unusual doubts about the chances of rescuing Greece. Italian daily Il Sole 24 Ore quoted the ECB chief, under growing fire in Germany for keeping Greek banks afloat, as saying he was not sure a solution would be found for Greece and he did not believe Russia would come to Athens' rescue.     ?Reuters