Greece's creditors must make a 'realistic' proposal' says EU President

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Donald Tusk said he hopes Athens will submit 'concrete and realistic proposals' for economic reform tonight
But he insisted that the creditors' terms for an international bailout must be an 'equally realistic proposal'
Greece has until midnight to submit formal plans for economic reform that will satisfy its creditors
The creditors then have until Sunday to review the plans and decide whether to bail Greece out once again

Published: 02:58 EST, 9 July 2015 | Updated: 08:00 EST, 9 July 2015

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EU President Donald Tusk today said that Greece's creditors must make a 'realistic' proposal for managing the country's huge debt, as Athens faces a midnight deadline to submit reform plans for an international bailout.

Greece's calls for its debt to be tackled have been backed by the International Monetary Fund and US Treasury Secretary, but Germany leads a hardline group of eurozone nations that are strongly opposed.

'I just spoke with the Greek Prime Minister Alexis Tsipras. I hope that today we will receive concrete and realistic proposals of reforms from Athens,' Tusk told a joint press conference with Luxembourg premier Xavier Bettel.

'If this happens we will also need a parallel proposal from the creditors. The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,' Tusk added.

'Only then will we have a win-win situation.'

Desperate: Pensioners argue, push and shove as they tried to enter a National Bank of Greece branch in the city of Iraklio on Crete today

Withdrawing her pension: An elderly woman leaves a branch of the National Bank in the city of Iraklio in the island of Crete this morning

Backing down: After a phone call with Greek Prime Minister Alexis Tsipras (left) this morning, EU President Donald Tusk (right) said that Greece's creditors must now make a 'realistic' proposal for managing the country's huge debt,

Peace: A policeman maintains order as Greek pensioners, who do not own an ATM card, line up to get part of their pensions in front of a branch of National Bank of Greece in Athens, Greece earlier this morning

Despair: Pensioners wait in front of the main entrance of a National Bank branch in central Athens to receive part of their pensions today

A policeman maintains order as Greek pensioners, who do not own ATM cards, line up to withdraw their pensions in Athens today

If Greece submits its proposals on time today, they will then be examined by the 'troika' of creditor institutions - the European Commission, the European Central Bank and IMF - before going on to political leaders.

Tusk, the former Polish premier, has set a special summit of all 28 European Union members on Sunday as the final deadline for a deal to bail out Greece and keep it in the European single currency.

Leftist premier Tsipras has called for a reduction of Greece's massive €320 billion debt mountain to be part of any deal for its third international bailout since 2010.

But Germany and many other eurozone nations reject any move to write off Greek debts, especially after Greeks in a referendum last weekend backed Tsipras's decision to reject the creditors' demands for further austerity.

A spokesman for the European Commission said Wednesday that its president, Jean-Claude Juncker, had called earlier this week for debt sustainability to be part of a Greek deal 'under the understanding that that would come later in October, provided that the other conditions would have been met.'

IMF chief Christine Lagarde yesterday said that a new programme to prop up Greece's finances would require creditors to restructure debt in addition to the reforms Athens must make.

'The other leg is debt restructuring, which we believe is needed in the case of Greece for it to have debt sustainability,' she told a conference in Washington.

Greece remains in economical crisis as banks stay closed

A pensioner undergoing oxygen therapy pushes her way to the front of a queue to enter a National Bank branch in Thessaloniki today

Hopeless: A pensioner sits with his head in his hands in front of the main entrance of a National Bank branch in central Athens

A pensioner reacts as she tries to enter a National Bank branch to receive part of her pension in the city of Thessaloniki this morning

A bank employee speaks to elderly Greeks as they line up to withdraw part of their pensions in front of a National Bank branch in Athens

Waiting to open: A policeman maintains order as Greek pensioners line up to withdraw their pensions in Athens today

US Treasury Secretary Jacob Lew made similar comments yesterday, saying the IMF was right to focus on the issue and that Greece's debt 'is not sustainable.'

But German Chancellor Angela Merkel said after an emergency summit of the 19 nations that use the single currency on Tuesday that debt relief would be illegal under the EU's treaties.

'A haircut is out of question,' she said when asked about the possibility of restructuring Greek debt.

Earlier Ryanair boss Michael O'Leary attacked the Greek people for electing 'a bunch of lunatics' into power but added that he hopes the country will get away from austerity soon.

The 54-year-old said too many Greeks had retired while they were still of working age in order to spend the rest of their lives 'sitting in a cafe drinking coffee'.

He added that Greece could no longer expect to have a such a large number of retired people living on large pensions 'expecting the Germans or the Irish or the Portuguese to pay [for them]'.

His comments come as Greece forced banks to stay closed to the majority of the public for the rest of the week, with ATM withdrawals limited to $60 per person per day and the elderly limited to withdrawing no more than €120 a week from their pensions fund.

Long queues form in Athens as pensioners try to access banks

Pensioners are seen at the entrance of a National Bank branch, waiting to receive their pensions in the city of Iraklio on the island of Crete

Prime Minister Alexis Tsipras shakes hands with a member of the European Parliament in Strasbourg during talks on Greece's economic crisis

Controversial: Michael O'Leary (right) said too many Greeks retired while still of working in order to spend their lives 'sitting in a cafe drinking coffee'. He also branded Greek Prime Minister Alexis Tsipras (left) 'a lunatic'

Men stand by a shop with a sign name showing a euro coin and reading in Greek 'cheap city' in central Athens

Speaking of the Greek economy, O' Leary told Newstalk's The Right Hook: 'There is a fundamental problem in Greece that 52 per cent of households in Greece depend on pensions as their main source of income but only 11 per cent of Greek people pay tax.'

'Now that's a circle you're never going to close, more Greeks have to pay tax, you have to close off the black market and less Greeks have to be able to live off pensions....You can't have an economy that functions that way,' he added.

'More people have to be productive, yes elderly people and young people need help. If you are of a working age, go out and work...You can't be bloody retiring, sitting in a cafe drinking coffee and expecting the Germans or the Irish or the Portuguese to pay for you,' he went on to say.

'The Greek situation is a tragedy, the difficulty for the Greeks is that they think that just by electing a bunch of lunatics you're going to get away from austerity... If you want to borrow from the Germans, you have to take the medicine,' O' Leary said.

The news comes as European officials suggested some large Greek banks may have to be shut and taken over by stronger rivals as part of a restructuring of the sector in the event of another bailout.

European leaders will gather on Sunday in a last-ditch attempt to salvage agreement with Greece after months of acrimonious negotiations that have taken the country to the brink of leaving the euro.

But regardless of whether or not fresh funds are now unlocked for the government, some Greek banks, damaged by political and economic havoc, may have to be closed and merged with stronger rivals, officials, who asked not to be named, told Reuters.

European leaders will gather on Sunday in a last-ditch attempt to salvage agreement with Greece after months of acrimonious negotiations that have taken the country to the brink of leaving the euro

A security worker carries cash into a bank as Greek pensioners line up to get part of their pensions in Athens

Enter: A security worker carries cash into a bank branch as Greek pensioners line up to get part of their pensions in Athens today

Greece's financial system has been at the heart of the current crisis, haemorrhaging deposits as relations between the radical left-wing government of Prime Minister Alexis Tsipras and creditors worsened

One official said that Greece's four big banks - National Bank of Greece, Eurobank, Piraeus and Alpha Bank - could be reduced to just two, a measure that would doubtless encounter fierce resistance in Athens.

A second person said that although mergers of banks were necessary, this could happen over the longer term.

'The Greek economy is in ruins. That means the banks need a restart,' said the first person, adding that prompt action was necessary following any bailout between Athens and the euro zone. 'Cyprus could be a role model.'

'You have a tiny bit of time ... you would do restructuring straight away.'

After Athens defaulted on debt owed to the International Monetary Fund last month, the ECB froze emergency funding for the banks, precipitating their temporary closure and a 60-euro daily limit on withdrawals from cash machines.

A decision by Greek voters last week to reject bailout terms offered by the country's international creditors prompted the ECB to maintain its cap, meaning that the banks will run out of cash soon.

European leaders say Greece must reform to secure credit

Waiting: Pensioners stand outside a branch of the National Bank of Greece in central Athens this morning. The elderly are limited to withdrawing no more than €120 a week from their pensions fund

Assistance: An elderly man is helped into a bank by an employee as he goes to withdraw up to €120 from his pension

Queues: Pensioners hold priority tickets as they wait to get inside a National Bank of Greece branch in Athens today

Patience: A man is seen holding a priority access ticket outside of a National Bank of Greece branch in central Athens

Waiting in line: A Greek pensioner holds a priority ticket as he lines up to get part of his pension in Athens this morning

A year ago, Greece's bankers thought they were on the cusp of a new era. They had restructured as part of the country's bailout deal, had raised fresh equity from international investors and had regained access to debt markets to fund lending.

But the economic and political turmoil that has ensued since Tsipras came to power in January means that they are dangerously short of cash.

Even after the immediate liquidity problems are worked out, any restructuring of the sector would first require a prompt recapitalisation of Greece's strongest lenders because rising bad debts and exposure to Greek government bonds mean they are in danger of becoming insolvent.

A timeline and exact plan for the sector's revamp could be finalised after a recapitalisation.

Such action would face stiff political resistance in Athens, where Tsipras has pledged to 'restore our banking system's functioning'. Bank mergers save money but cost jobs, making them unpopular.

Reflecting such obstacles, a second person said: 'There would be an interest in having less banks ... but I'm wondering whether this would make sense in the short term.'

Any closures, which would be managed primarily by Greek authorities under the watch of the European Central Bank's supervisors, would not typically affect customers as their deposits and accounts would migrate to the bank's new owner.

Greece's finance ministry was not immediately available for comment, while a spokeswoman for the ECB said: 'The ECB Banking Supervision is closely monitoring the situation of Greek banks and is in constant contact with the Bank of Greece.'

Greek pensioners wait outside of a National Bank of Greece branch in central Athens this morning

A pensioner holds a priority ticket as she waits to get part of her pension outside of a National Bank of Greece

A woman looks at sandals in a shop as a man passes by Greek and European Union flags in central Athens

Greek Prime Minister Alexis Tsipras delivers a speech at the European Parliament in Strasbourg yesterday

Any such revamp would be a stark reminder of the withered state of the country's financial system, where deposits had shrivelled to their lowest level in more than a decade before savers were forced to ration cash withdrawals.

Of Greece's four big banks, National Bank of Greece, Eurobank and Piraeus fell short in an ECB health check last year, when their restructuring plans were not taken into account.

Only Alpha Bank was given an entirely clean bill of health.

A restructuring could follow a similar pattern to Cyprus, where one of the island's two main banks was closed as part of its stringent bailout, and Ireland, where three lenders were either shut or merged with rivals.

But a senior Greek banker, while acknowledging that the ECB could embark on fresh stress tests and 'set the recapitalisation, restructuring process going again', said any mergers would reduce competition.

'If the argument is cost efficiency and whether Greece is overbanked, with four players there is a semblance of competition,' he said. 'With fewer players, competition will be reduced even more.' (Additional reporting by George Georgiopoulos in Athens; Editing by Carmel Crimmins)