As money runs out, Greek president does not say debt relief is a red line

Greece will on Wednesday apply for a new bailout to keep it funded for up to two years as its economy risks grinding to a halt and European leaders warn it is edging closer to leaving the euro zone.

With Greek banks running out of money and German chancellor Angela Merkel warning that "only a few days" are left to reach a deal with international creditors, Greek prime minister Alexis Tsipras is due to present a proposal aimed at giving the two sides a basis for resuming talks.

Greek officials said Athens would propose an interim funding deal for July before a long-term bailout programme through the European Stability Mechanism could be arranged. Economy minister Giorgos Stathakis said the latter request would be for bailout funding to cover the next 18 months to two years.

Mr Tsipras briefed US president Barack Obama on the proposal on Tuesday and is due to address the European Parliament on Wednesday.

Shop shortages

Amid intense diplomatic activity across

Europe

, banks in Greece remained closed for a seventh working day and a €60 daily withdrawal limit remained in place at ATMs. Shortages were reported in some shops.

Greece has insisted that debt relief must be included in any new deal with its creditors, an idea strongly resisted by Germany, Finland and a number of other states.

Athens has left the door open to compromise, however. In a letter to European Council president Donald Tusk, which set out the agreed conclusions of a Monday meeting between the Greek government and opposition leaders, Greek president Prokopis Pavlopoulos wrote that the "common goal" was a solution that ensured "a commitment to beginning a substantial discussion on confronting the problem of the viability of Greek public debt."

By not specifically identifying a cut in Greece’s debt as a red line, the letter left open the possibility of a deal turning on a commitment for future discussions on an extension of maturities or more generous interest rates for Greece.

In the letter, Mr Pavlopoulos said there was all-party consensus that Sunday’s referendum result was not a mandate to break away from the euro zone, but “a mandate to continue and strengthen the effort for attaining a socially just and economically viable agreement”.

In addition to its demands on debt, Athens wants to keep a 30 per cent discount on VAT on Greek islands and delay defence spending cuts. It is also resisting raising VAT on restaurants to 23 per cent, and wants to wait until 2019 to phase out an income supplement for poorer pensioners.

Euro zone finance ministers will discuss Greece’s proposals in a conference call this morning – the first step to restarting talks that broke off when the Greek government called a referendum on a proposed bailout offer from its lenders.

Strengthened Tsipras

The referendum result – an emphatic 61 per cent rejection of the creditors’ proposal – has strengthened Mr Tsipras at home but added to the uncertainty around Greece’s chances of staying in the euro.

Athens hopes that a resumption of talks as early as Wednesday would serve as a signal to the European Central Bank to increase its emergency funding of the Greek banking system, allowing the banks to reopen.

The banks are to remain closed at least until tomorrow, but the current drip-feed level of funding from the ECB is not enough to keep them from running dry within days.

Even if the banks can stay afloat, Greece faces an apparently insurmountable obstacle on July 20th, when it owes €3.5 billion on a bond held by the ECB. If it misses that payment, Frankfurt could pull the plug and force Athens to print its own currency.

One idea floated on Tuesday was that the ECB could consider short-term bridge financing for Greece as creditors explore ways to keep the country afloat while attempting to resolve its debt crisis.

ECB governing council member Ewald Nowotny said discussions were taking place on whether it could take such a step in anticipation of a deal.