Greek Prime Minister Alexis Tsipras addresses the European Parliament in Strasbourg. Source: Getty Images

The government in Athens has formally asked for a three-year bailout from the eurozone’s rescue fund and pledged to start implementing some economic-policy overhauls by early next week, according to a copy of the request seen by The Wall Street Journal.

But whether European leaders accept the application for more emergency loans at a crisis summit on Sunday still depends on Prime Minister Alexis Tsipras making a drastic turnaround on pension cuts, tax increases and other austerity measures after five months of often-acrimonious negotiations.

Eurozone officials expect the request for more aid to be followed up by a full list of detailed policy overhauls and budget cuts that go beyond those that Greek voters overwhelmingly rejected in a referendum last weekend.

“The actual examination can only begin once the full package has been put on the table,” said a spokesman for German Finance Minister Wolfgang Schäuble, who has pushed a hard line on Greece and made clear that Germany is prepared for a potential Greek exit from the eurozone.

His comments echo those of German Chancellor Angela Merkel, who said early yesterday that a multiyear aid program would require measures — including changes to labour laws, product markets and the privatisation of state assets — that had been dropped from negotiations in recent months.

As a sweetener, eurozone leaders offered to start discussing measures on how to ease Greece’s immense debt burden. They also suggested that short-term financing to help meet a €3.5 billion ($US3.8 billion) bond payment to the European Central Bank on July 20 could be a part of a broader, longer-term deal.

Since the start of the month, Greece can no longer draw from the €245 billion in rescue loans that have kept it afloat for the past five years. On June 30 the eurozone portion of that bailout expired, while the country’s default on a €1.56 billion payment to the International Monetary Fund last week has made Athens ineligible for more help from there.

Putting itself at odds with Germany and other hawkish euro countries, the US has pressed for more flexibility in bailout negotiations — in particular on debt relief. Treasury Secretary Jacob Lew called on European governments to help reduce Greece’s debt if Athens commits to the necessary overhauls.

“Greece’s debt is not sustainable,” he said.

Greek banks could soon run out of cash, leaving just days to avoid “a life or death” deadline that has escalated the risk of an accidental exit from the eurozone, Mr Lew said at an event at the Brookings Institution.

The IMF, Greece’s biggest creditor outside the eurozone, has long insisted that high debt has been weighing on growth and that the currency union’s governments should take action to reduce it.

“It’s a mistake for the European economy, for the global economy, to take the risks involved with an uncontrolled crisis in Greece,” Mr Lew warned.

Failure to pay the ECB could lead to a cut in emergency lending to Greek banks — a move that would lead to the collapse of the country’s financial system and force the government to print its own money to recapitalise them.

Greek banks have already been shut for more than a week. Cash withdrawals have been limited to €60 a day and depositors can’t transfer funds abroad.

In his first address to the full European Parliament in Strasbourg, France, Mr Tsipras mixed conciliation with defiance, pointing to his countrymen’s resounding “no” vote in Sunday’s national referendum as evidence of a fresh mandate to demand a good deal.

He told politicians, some of whom were holding up “OXI” or “NO” signs in a reference to the Sunday vote, that he would send a detailed list of measures in time for a midnight (8am AEST Friday) deadline set by other eurozone governments.

But Mr Tsipras also said that his government would choose its own measures to ensure that a final deal was “effective and fair.”

“We respect the eurozone rules, but we also have the right to choose where we as a sovereign government will put the tax burden,” he said. “It’s the sovereign right of any government to decide to increase tax on profitmaking businesses and not cut back on the lowest pensions.”

Mr Tsipras said his proposals would contain demands for a “genuine dialogue” on restructuring Greece’s huge debt load, which he said was necessary to give the country a “light at the end of the tunnel.”

“We demand an agreement with our neighbours, but one that gives a sign that we are in a long-lasting basis for exiting from the crisis,” he said.

The letter from Finance Minister Euclid Tsakalotos to Jeroen Dijsselbloem, the chairman of the Eurogroup of finance ministers, and Klaus Regling, the managing director of the eurozone bailout fund, supersedes a request from last week for a two-year rescue program.

It says that some overhauls, including measures linked to taxation and pensions, which have been at the centre of the standoff between Greece and its creditors, would be implemented as early as next week.

The letter also makes a request for debt relief, albeit in much more toned-down language than earlier demands. “As part of a broader discussion to be held, Greece welcomes the opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term,” the letter says.

Senior officials from eurozone finance ministries discussed the aid request in a conference overnight and asked the European Commission and the ECB to assess whether Greece is eligible for more rescue loans, according to a statement from the bailout fund, called the European Stability Mechanism.

Alexander Stubb, the Finnish finance minister, underlined the urgency of a deal in a Twitter message: “5-5-5. Five difficult years. Five mixed months. Five interesting days. A solution has to be found by Sunday. One way or the other.”

Wall Street Journal