European leaders appear divided on 'temporary Grexit'

The German government’s proposals for a supposed temporary exit of Greece from the eurozone amid deepening debt crisis faced opposition from not only France, but it was criticized by the German president as well.

French President Francois Hollande firmly dismissed the idea of a "temporary Grexit" on Sunday, which was floated by Germany earlier in the day, as an alternative plan in the case of a failure to reach an agreement with Athens at an extraordinary summit in Brussels on the reform conditions for a third bailout.

“There is 'Grexit' or no 'Grexit’. Greece is in the eurozone or out of it,” Hollande said.

“What’s at stake is Europe. It’s not just about the future of Greece,” he added. “It’s the concept we have of Europe”.

Hollande made the remarks in Brussels, as leaders of the eurozone countries gathered for a summit to discuss the conditions and the possibility of a third bailout for Greece, which would prevent the EU member state from going bankrupt.

Germany proposes “temporary Grexit”

The German government adopted a hardline ahead of the summit and argued that the reform list submitted by the Greek government last week was not sufficient to start negotiations on a third bailout.

It proposed a “temporary Grexit" if the bailout talks did not result in an agreement with Athens.

“As debt sustainability and a credible implementation perspective cannot be ensured upfront, Greece should be offered swift negotiations on a time-out from the eurozone, with possible debt restructuring, if necessary, in a Paris Club-like format over at least the next five years,” the German paper submitted to the European partners argued.

“The time-out solution should be accompanied by supporting Greece as an EU member and the Greek people with growth enhancing, humanitarian and technical assistance over the next years,” it said.

German president opposes “Grexit”

Despite the hardline approach adopted by German Chancellor Angela Merkel and her close aide Finance Minister Wolfgang Schaeuble, German President Joachim Gauck opposed the idea of a “temporary Grexit”.

“I refuse to imagine something like that,” Gauck said on Sunday in an interview with German public television ZDF.

“Greece will continue to be part of Europe,” he said.

He urged the Greek government to take steps for reform to restore trust among European partners.

Greece has made an offer for a €53.5 billion ($59 billion) three-year bailout, promising to make a number of economic reforms demanded by creditors.

But deep differences among European partners diminished hopes to reach a swift agreement.

Merkel said Sunday that it was "unlikely" that the summit of European leaders could reach an agreement on a new Greek bailout. "We must consider what the eurozone needs, and what Greece needs," she told the press, arriving at the summit. "We will all try our best -- whether it will succeed or not remains to be seen," she added.

- Eurozone brings tough conditions

Leaders of the Eurozone countries demanded tough conditions from the Greek government on Sunday night to begin negotiations on a third bailout, according to a draft document published by the Greek daily, Kathimerini.

European leaders demanded from Greek authorities to legislate key reforms until July 15, which included streamlining Value Added Tax, broadening the tax base, key reforms in the pension system and spending cuts.

They also demanded commitments on further privatizations, according to the draft document.

If Greek government fails to reach an agreement with European partners, it would mean an end to all bailout negotiations. This means that Greek banks, which are nearly out of funds, would receive no further aid from the European Central Bank, and thus the country would be effectively forced out of the euro system.

Since 2010, the EU and the International Monetary Fund have allocated around €240 billion ($265 billion) in bailout loans to Greece.

A €245 billion ($270.5 billion) bailout program under the European Financial Stability Facility ended late last month. Greece is due to make a €3.5 billion ($3.86 billion) payment to the European Central Bank on July 20.