Greece's combative finance minister resigned on Monday, removing one major obstacle to any deal to keep Athens in the euro zone after Greeks voted resoundingly to back the government in rejecting the austerity terms of a bailout.
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Leftist Prime Minister Alexis Tsipras promised German Chancellor Angela Merkel that Greece would bring a proposal for a cash-for-reforms deal to an emergency summit of euro zone leaders on Tuesday, a Greek official said. It was unclear how much it would differ from other proposals rejected in the past.
Gloomy officials in Brussels and Berlin said a Greek exit from the currency area now looked ever more likely.
But they also said talks to avert it would be easier without Yanis Varoufakis, an avowed "erratic Marxist" economist who infuriated fellow euro zone finance ministers with his casual style and indignant lectures. He had campaigned for Sunday's 'No' vote, accusing Greece' creditors of "terrorism".
"I was made aware of a certain 'preference' by some Eurogroup participants, and assorted 'partners', for my... 'absence' from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement," Varoufakis said in a statement.
His sacrifice suggested Tsipras was determined to try to reach a last-ditch compromise with European leaders.
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Greece's political leaders, more accustomed to screaming abuse at each other in parliament, issued an unprecedented joint statement after a day of talks at the president's office backing efforts to reach a deal with creditors.
They called for immediate steps to reopen banks and said any deal must address debt sustainability - code for reducing Athens' crushing debt - but gave no hint of concessions from the Greek side towards lenders' demands for deep spending cuts and far-reaching reforms of pensions and labour markets.
The chief negotiator in aid talks with international creditors, Euclid Tsakalotos, a soft-spoken academic economist, was appointed finance minister.
Austrian Finance Minister Hans Joerg Schelling said publicly what other euro zone players had said in private: "Varoufakis was someone who massively destroyed trust through his name-calling and by repeatedly criticizing the institutions ... that's why I hope that the basis for talks will now be better."
To win any new deal, Greece will have to overcome deep distrust among partners, above all Germany, Greece's biggest creditor and the EU's biggest economy, where public opinion has hardened in favour of cutting Greece loose from the euro.
Varoufakis had a particularly acrimonious relationship with Germany's Finance Minister Wolfgang Schaeuble, who said the new Greek minister would not have an easy task.
German government spokesman Steffen Seibert said conditions were not yet in place for a resumption of negotiations with Greece.
While jubilant Greeks celebrated their national gesture of defiance late into the night, there was gloom in Brussels.
European Commission Vice-President Valdis Dombrovskis said there was no easy way out of the crisis and the referendum result had widened the gap between Greece and other euro zone countries.
Tsipras has also spoken by telephone to French President Francois Hollande, who is trying to broker an agreement ahead of Tuesday's Brussels summit.
Hollande was due to meet later on Monday with Merkel in Paris to seek a joint response from the euro zone's two leading powers, whose positions have drifted apart.
An EU source said barring some major Greek concession, euro zone leaders were more likely to discuss on Tuesday how to cope with a Greek exit, and how to reinforce the remaining currency union, than any new aid programme for Athens.
While France and Italy have emphasised the importance of more talks, a big majority of the 19 euro zone government favour taking a hard line with Greece, diplomats said, and German public opinion is running out of patience.
Merkel's vice-chancellor, Social Democrat Sigmar Gabriel, told a news conference: "If Greece wants to stay in the euro, the Greek government must quickly make a substantive offer that goes beyond its willingness thus far."
A German Finance Ministry spokesman brushed aside Greek demands for a big debt write-down, which the International Monetary Fund said last week may be necessary. He said the IMF was promoting its traditional stance but Europe had opted for solutions other than debt cuts to put countries back on track.
The Greek bank association chief said an eight-day-old bank closure that has crippled the economy will continue on Tuesday and Wednesday and the daily cash machine withdrawal limit of 60 euros would be maintained. There were long lines at ATMs, where 20-euro banknotes have largely run out.
In one bright spot for Greece's dismal economy, travel associations in Britain, Germany and France said tourists remain undeterred and bookings for peak season Greek vacations were strong, with no cancellations so far.
Greece's immediate fate is in the hands of the European Central Bank, which has kept Greek banks open with a trickle of emergency cash. The ECB's policymaking governing council began a conference call in late afternoon to decide how long to go on keeping Greek banks afloat.
Several people familiar with ECB policy said it would probably reject a Greek request to raise a cap on emergency liquidity assistance and leave the limit unchanged, slowly tightening the noose but giving banks a few more days' air.
After five years of economic crisis and mass unemployment, Greek electors voted 61.3 percent 'No' to the bailout conditions already rejected by their radical leftist government, casting Greece into the unknown.
"You made a very brave choice," Tsipras said in a televised address as jubilant supporters thronged Athens' central Syntagma Square to celebrate the act of defiance of Europe's political and financial establishment.
The euro slid against the dollar after the setback for Europe's monetary union, and European shares and bonds took a hit when markets opened after the weekend. But the losses were contained and there was no sign of serious contagion to other weaker euro zone sovereigns.
Analysts with several international banks including Citi, Barclays, BNP Paribas and J.P. Morgan said a "Grexit" from the euro zone was now their most likely scenario.
British finance minister George Osborne told parliament in London: "The prospects of a happy resolution of this crisis are sadly diminishing."
EU officials said it would be hard to give Greece easier terms, not least because its economy has plunged back into recession since Tsipras' Syriza party won power in January. Public finances were now in a far worse position than when the rejected bailout deal was put together.
But on the streets of Athens, citizens were unrepentant at their vote.
"I voted 'No' to austerity; I want this torture to end," said Katerina Sarri, 42, a mother of two running a kiosk in Athens.
"I'm aware that we will suffer for years but I'm still hopeful. I need to know that there is light at the end of tunnel, that the lives of my children will be better," she said. (Additional reporting by Renee Maltezou, Deepa Babington, Lefteris Karagiorgiannis and Angeliki Koutantou in Athens, Paul Carrel and Andreas Rinke in Berlin, Julien Ponthus in Paris; Writing by Paul Taylor; Editing by Peter Graff and Giles Elgood)