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Greece Hit With More Austerity In Exchange For Bailout As Eurozone Leaders Battle To Save Single Currency

12/07/2015 21:35 BST | Updated 12/07/2016 10:59 BST

Eurozone leaders battled over their response to Greek proposals on Sunday as the single currency countries struggled to find a united strategy to stave off ruin for the Greek economy. After Athens demanded a fresh bailout in exchange for more austerity, German hawks clashed with their less strident counterparts from France in marathon talks in Brussels.

Germany has placed Greece under intense pressure to accept even more draconian cuts or see themselves shoved out of the eurozone. The current proposal would require Athens to vote through fresh austerity measures by Wednesday. The alternative is to agree to a "temporary Grexit" so that the government could attempt to restructure its debts.

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Greek Prime Minister Alexis Tsipras, left, speaks with European Commission President Jean-Claude Juncker, center, and French President Francois Hollande during a meeting of eurozone heads of state at the EU Council building in Brussels on Sunday, July 12, 2015

Demands from eurozone leaders include new laws for pensions and VAT, the privatisation of electricity transmission, the independence of the Greek statistics office and the reform of bankruptcy rules. Remarkably, eurozone chiefs have demanded €50bn in Greek assets be handed over to eurozone authorities with the promise that they will be sold off should Athens fail to keep up with reforms.

Should Alexis Tsipras accept the deal it would represent a dramatic U-turn for the Greek prime minister who was elected on an anti-austerity agenda, as well as a rejection of the result of the recent Greek referendum.

One top EU official said the Sunday meeting between Tsipras, German Chancellor Angela Merkel, European Council President Donald Tusk and French President Francois Hollande was akin to "extensive mental waterboarding" of the Syriza chief.

Tusk confirmed on Sunday the cancellation of a planned meeting of the European Union leaders. David Cameron was to join 27 other leaders at a meeting in Brussels, however talks are continuing with just with the representatives of countries that adopted the single currency. According to Tusk, eurozone leaders are to remain locked in talks until "we conclude talks on Greece".

Fundamental differences remain between Greece's prime minister and skeptical European leaders. Facing a self-imposed Sunday deadline, the European nations sought more proof from Tsipras that he could be fully trusted to enact wide-ranging economic reforms to safeguard Greece's future in the common euro currency.

Tsipras came into the summit looking for a compromise deal. "We owe that to the peoples of Europe who want Europe united and not divided," he said. "We can reach an agreement tonight if all parties want it."

Greece has asked Europe's bailout fund for a 53.5 billion-euro ($59.5 billion) 3-year financial package but many officials in Brussels say the figure will have to be much higher and insist on tough Greek austerity measures. This would be Greece's third bailout in five years.

Greece's economy is in freefall and the country faces big debt repayments in the coming weeks. Greek banks have been shuttered for the best part of two weeks and daily withdrawals from ATMs have been limited to a paltry 60 euros ($67). The banks, according to some accounts, have barely enough cash to last through the week.

Chancellor Angela Merkel, however, insisted that Germany would not sway from its stance that Greece needs to do much more to get any help just to save its position in the 19-nation eurozone. "There will not an agreement at all costs," she said, coming into Sunday's summit meeting. "Nerves are tense, but it has to be clear that the advantages outweigh the disadvantages."

Highlighting the differences within the creditors' camp, French President Francois Hollande insisted it was vital to keep Greece in the currency club and avoid a so-called "Grexit." If Greece had to leave the euro currency "it's Europe that would go backward," Hollande said. "And that I do not want."

France is considered Greece's best friend and even helped Tsipras prepare the reform proposals that are his lifeline to getting international aid over the coming days or weeks. "We have lost so much time we cannot afford to lose time anymore," Italian Finance Minister Pier Carlo Padoan said as he arrived for talks Sunday. "We continue to work to establish the conditions to start negotiations, which is the real target. ... It is not about closing a deal."

Malcolm Barr, an analyst at JP Morgan, said Tusk's confirmation of the cancellation of the broader EU summit "suggests a clear decision against a third package for Greece is not likely at this point."

The leaders are firmly focused on "plan A" that involves Greece living up to its obligations and staying in the euro, a European official who is close to the negotiations said. He spoke on condition of anonymity because he was not authorised to speak publicly.

The official added the hope is that there is enough progress to give the "green light" to the European Central Bank to turn up the emergency liquidity assistance it provides to Greek banks in the next day or two.

Finance ministers broke up talks Saturday after more than eight hours with Greece's creditors unconvinced that the Tsipras government could be trusted to reform the Greek economy. They want iron-clad proof that it can deliver on promises to implement tough austerity and reform measures in return for billions more in rescue money — including making pension changes and sales tax increases.

"I would like to see the Greek government take concrete actions starting tomorrow in parliament to implement measures that are needed," Padoan said Sunday. "And then to rebuild trust that would allow concrete negotiations to move forward."

Tsipras cleared one hurdle Saturday when lawmakers in the Greek parliament overwhelmingly backed a package of economic reforms and further austerity measures, in hopes that would convince European creditors to back the third bailout.

The eurozone ministers have to give their blessing to Greece's bailout request to the European Stability Mechanism. Traditionally, eurozone ministers agree by mutual consensus, though in exceptional circumstances a unanimous vote may not be needed.

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German Chancellor Angela Merkel, center, arrives for a meeting of eurozone heads of state at the EU Council building in Brussels on Sunday, July 12, 2015

Greece has received two previous bailouts totaling 240 billion euros ($268 billion) in return for deep spending cuts, tax increases and reforms from successive governments. Although the country's annual budget deficit has come down dramatically, Greece's debt burden has increased as the economy has shrunk by a quarter.

The Greek government has made getting some form of debt relief a priority and hopes that a comprehensive solution will involve European creditors at least agreeing to delayed repayments or lower interest rates. Greek debt stands at around 320 billion euros ($357 billion) — a staggering 180 percent or so of the country's annual GDP. Few economists think that debt will ever fully repaid. Last week, the International Monetary Fund said a restructuring of debt was necessary for Greece.

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