With Greece on brink of default, hopes for a breakthrough put on hold

Greek Prime Minister Alexis Tsipras at a meeting in Brussels ahead of a Eurozone emergency summit on Greece on June 22, 2015. The European Union welcomed new proposals from Greek Prime Minister Alexis Tsipras as a "good basis for progress" to avoid bankruptcy. REUTERS/Yves Herman (Yves Herman/Reuters)

LONDON — Negotiators made progress toward an 11th-hour agreement to prevent Greece from defaulting on its debt and crashing out of the euro zone, but not enough to seal a deal on Monday at a crisis summit, officials said following talks in Brussels.

A new Greek proposal made late Sunday night was "a basis to re-start the talks and in the next couple of days to get a result," said Eurogroup President Jeroen Dijsselbloem following a meeting of European finance ministers.

But there had not been enough time to review the proposals before European leaders hold an emergency summit Monday evening that had been seen as the last chance for a breakthrough after months of deadlocked and acrimonious negotiations.

Earlier, officials on both sides had expressed optimism that a deal was within sight.

European Union economic commissioner Pierre Moscovici told Europe 1 radio that “we are moving in the right direction. We have solid ground for a deal.”

[Anatomy of the euro zone crisis]

Greek Prime Minister Alexis Tsipras, upon arrival in Brussels, said it is now the “time for a substantial and viable solution that will allow Greece to come back to growth within the euro zone.”

But European finance ministers poured cold water on the idea that the vast gulf between Greece and its creditors could be bridged in a single day, suggesting it won’t be easy to reach a deal to keep Greece from defaulting on $1.7 million worth of debt owed to the International Monetary Fund at the end of the month.

European officials said Greece had sent its new proposals too late Sunday evening to reach any tangible deal Monday, and that Greece had sent different versions that contributed to confusion over its stance.

Now the talks will continue for at least several more days, meaning that Greece will remain in economic limbo.

Nonetheless, markets across Europe were clearly anticipating a successful outcome to the negotiations – if not on Monday, then sometime before the end-of-month deadline. Stock indices rose across the continent and Greek bond yields falling sharply, indications that investors see less risk than they had on Friday.

Greece’s leftist government has been locked for months in a game of chicken with its European creditors. Each side has suggested grievous harm for the other if a deal can’t be reached.

For Greece, failure of negotiations could mean an unceremonious exit from the euro zone, and potential economic cataclysm for a country already ravaged by its sky-high debt and the austerity policies prescribed as the cure.

For Europe, a Greek exit could set a dangerous precedent with consequences for other struggling economies along the continent’s southern periphery, including Italy, Portugal and Spain.

It could also have dangerous security implications at a time when Greece is struggling with an extraordinary influx of migrants from South Asia, Africa and the Middle East. In addition, Greece, a NATO member, has made no secret of its flirtation with Russian President Vladimir Putin as a possible alternative lender if Europe’s patience runs out.

Since his election in January, Tsipras has demanded that Europe write off some of Greece’s debt and ease up on the austerity policies implemented as a condition of the $264 billion worth of bailouts the country has received since 2010 from the IMF, the European Commission and the European Central Bank.

Europe, in turn, is asking Greece for pension cuts, labor market reforms and tax increases in order to put the country’s balance sheets on a better footing.

Greece’s leaders say such measures have already shrunk the economy by a quarter and sent unemployment above 25 percent. But they may have to accept them in order to get the funds they need to avoid a default.

No details of Greece’s latest proposals were made public on Monday. They could, however, cross previously declared “red lines” such as raising the retirement age and the value-added tax.

Greece’s economic crisis has been compounded in recent weeks by a steady exodus of cash from Greek banks, with billions of euros withdrawn last week alone. Greek banks have required several rounds of emergency loans from the European Central Bank just to stay in business, the latest coming on Monday.

There was widespread speculation Monday that any deal will be a stopgap move at best — perhaps just a six-month extension that would allow Greece to keep paying its bills this year, but set up yet another round of potentially contentious talks toward the end of 2015.

Even if Greece and Europe can come to agreement Monday, it could be hard for Greek leaders to sell the deal at home. Greece’s ruling Syriza party was elected on a pledge to end austerity, and any new austerity measures could spawn a backlash within the party’s left-wing membership and with its right-wing coalition partner.

Brian Murphy in Washington contributed to this report.