Euro leaders cautiously optimistic about Greek debt deal

BRUSSELS -- Greece has finally offered economic reforms that creditors consider potentially acceptable, giving Prime Minister Alexis Tsipras a couple days to turn a spirit of goodwill into a deal that might keep the country from a painful exit from the euro currency.

Even though a firm deal to get Greece more loans remained elusive Monday, leaders from the 19 euro nations and the International Monetary Fund said Tsipras' new reforms plan offered the basis to break a four-month deadlock in talks.

Uncertainty over Greece has sapped confidence in global markets, particularly in Europe, and threatened the financial future of Greeks.

"I want to end this political gambling," said European Union President Donald Tusk at an emergency summit on the issue.

In its compromise proposal, Greece is offering about 8 billion euros ($9 billion) in higher taxes and austerity measures over the next two years, a Greek government official said on condition of anonymity because the measures had not been officially announced.

Financial officials gave a tentative endorsement to Greece's proposals for spending cuts and reforms they would make in exchange for billions of euros in fresh loans. Greece needs the money urgently as it faces a June 30 debt repayment it cannot afford.

Tusk said Greece's plans, which include retirement reform and sales tax changes, "were the first real proposals in many weeks."

"It's an opportunity to get that deal this week," said Jeroen Dijsselbloem, the Dutchman who chaired an emergency meeting of eurozone finance ministers ahead of the summit.

Leaders are now looking at a two-day European Union summit starting on Thursday in Brussels to make the final thrust in the talks and reach a deal that will keep Greece solvent.

Multiple deadlines for Greece to propose more reforms have come and gone, with the country living hand to mouth in the meantime. But French President Francois Hollande said "better to take a few days, but get to an agreement."

German Chancellor Angela Merkel agreed, saying "there are still a lot of days left to come to a decision."

The more co-operative spirit gave a boost to stock markets. Athens shares closed 9 per cent higher. The Stoxx 50 index of top European shares was somewhat less volatile and closed up 4.1 per cent.

The need for a deal could not be more pressing. Greece must pay 1.6 billion euros ($1.8 billion) to the IMF in just over a week, on June 30. Further payments are due in July and August, and the leftwing government in Athens does not have the money to pay them.

A debt default by Greece could destabilize its banks -- Greeks are already withdrawing increasingly large amounts of money -- and could in a worst case scenario cause the country to have to leave the euro.

That would be hugely painful for Greeks but experts are more divided about its effects on Europe and the world economy. Several European countries have said publicly they are getting prepared for the possibility.

The proposals will impose new taxes on businesses and the wealthy but no further cuts in pensions or public sector salaries, which remain a "red line" for the left-wing government of Tsipras.

Athens will make tougher rules on early retirement and shift some categories of goods to a higher sales tax bracket, including hotels and certain foods. Emergency bailout taxes that had been imposed will remain, even though Tsipras had pledged to phase them out.

The official said that employers will have to contribute higher social security contributions to pension and unemployment funds. He said there would also be a special one-off tax for profitable businesses.

Despite the more upbeat mood in markets, tension was palpable in Greece, where people have flocked to cash machines to withdraw money. The concern is that a debt default by Greece could destabilize the country enough that it might eventually have to leave the euro.

"Everyone's going (to the banks) to take money," said Yannis Nikolopoulos in Athens. "If the banks shut it'll be a problem to go shopping and that sort of thing." Without a deal, he said, "we're doomed."

To support Greek banks in the face of growing money withdrawals, the European Central Bank increased the amount of emergency credit it allows the banks to draw on, officials said.

Reports indicate Greeks withdrew about 4 billion euros last week.

The current talks centre on releasing the last 7.2 billion euros in the country's bailout program, which expires at the end of the month.

Since coming to power in January, the new government has refused to make more budget austerity measures, which it blames for devastating the economy. It has since softened its approach, but it remains reluctant to take all steps creditors demand.