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By Bloomberg

Greece is rushing to pull together a detailed economic package to convince European leaders that it can keep the euro.

The government extended capital controls through Monday, and Prime Minister Alexis Tsipras has until midnight Thursday to present his European colleagues with a plan that includes spending cuts, in exchange for a new European bailout.

The continent’s most-indebted country has never been closer to leaving the currency after more than six European leaders made clear this is Greece’s last chance. Failure to get a deal could result in the European Central Bank cutting funds to Greek banks, forcing the country to issue IOUs or some other form of exchange to prevent economic collapse.

“Greece has to demonstrate a willingness to follow through and table some reforms extremely quickly,” Mujtaba Rahman, an analyst at Eurasia Group, said in a note to clients.

Chancellor Angela Merkel, who as head of Europe’s biggest economy carries the most sway, is willing to let Greece go if Germany doesn’t consider its plans credible, according to two government officials familiar with her strategy who asked not to be identified discussing private deliberations.

Greece can’t look to the International Monetary Fund for “special treatment” after falling in arrears, said IMF Managing Director Christine Lagarde.

Market Reaction

The benchmark Euro Stoxx 600 index rose 1 percent Wednesday and the euro was little changed, a sign that investors are confident any fallout from Greece won’t spill over to other countries. Portuguese and Italian bonds rose on optimism Greece would be able to reach a deal, or that the ECB would act to protect other markets. In Asian trading on Thursday, the MSCI Asia Pacific Index was little changed, hovering near the lowest in almost seven months.

The leaders of all 28 European Union countries will meet in Brussels on Sunday to decide their response to Greece’s proposals. The ECB said Wednesday it was leaving the level of aid to Greek banks unchanged. It will meet next Monday to consider its own next moves.

Sunday’s gathering represents the one of the biggest tests of a five-year-long effort to contain Greece’s debts, which exceed 170 percent of gross domestic product.

Securing a deal with creditors will almost certainly require Tsipras and his Coalition of the Radical Left, or Syriza, to capitulate to changes they have resisted since coming to power in January. Greek voters emphatically rejected a program of spending cuts and tax hikes in a July 5 referendum.

Bailout Letter

On Wednesday, Greece sent a letter to the European Stability Mechanism, the entity that co-ordinates financial assistance to member states, requesting a three-year bailout loan. What was missing were specifics.

After months of often-contentious interactions with creditors, the document signed by the new finance minister, Euclid Tsakalotos, struck a relatively conciliatory tone. It said Greece planned to honor all its debts and introduce tax and pension reforms as soon as next week. Tsipras had previously characterized pension cuts as one of the “red lines” Greece would not cross.

The ESM has begun the formal process of reviewing the request, which will be followed with more details by the end of Thursday. Greek banks will remain closed this week and on Monday to stem withdrawals, which are capped at 60 euros per person per day, causing long lines at cash machines.

“We cannot rule out a deal on Sunday but strong conditionality and commitment to reforms will be required,” analysts at Societe Generale wrote in a note to clients. “Any agreement on potential debt relief -- more likely debt re- profiling -- will only be decided in October, after all reforms have been adopted by the Greek Parliament. The latter condition will be extremely difficult for the Greek government.”