The government of GreekPrime Minister Alexis Tsipras drafted a new proposal it hopes willconvince creditors to let the country stay in the euro.

The package of economic reforms and spending cuts, put togetherwith help from France, was approved by a majority of the country'scabinet ministers and is due to be submitted by midnight Brusselstime. The proposals are set to be discussed at a summit of EuropeanUnion leaders Sunday to determine whether the country will get anew bailout, or be forced to leave the single currency.

Although the odds of a so-called Grexit have climbed, “we continue tosee Greece staying in the euro as marginally more likely, not leastbecause the majority of Greeks prefer so,” Deutsche Bank analystswrote in a note to clients. “Europe is intent on forcing an outcomeeither way.”

Market reaction suggested investors believe a deal can be done,or that the European Central Bank (ECB) can successfully contain thefallout if one isn't. The benchmark Stoxx Europe 600 Index rose2.2 percent and Greek, Portuguese, and Italian bonds rose. The euroslid 0.7 percent to $1.101

Pressure has been mounting on Greece's creditors to make thecountry's debt more manageable, giving it a chance to rebound froma crisis that has erased a quarter of its economy.

“Realistic proposal from Athens needs to be matched by realisticproposal from creditors on debt sustainability to create win-winsituation,” European Union President Donald Tusk said in a Twitterpost Thursday.

The U.S. wants to see debt sustainability in Greece, John Kirby,State Department spokesman, told reporters in WashingtonThursday.

Greece has been nonetheless closer than ever to departing theeuro, with a broad cross-section of European officials speakingopenly about such an eventuality.

In an interview with an Italian newspaper on Thursday, ECBpresident Mario Draghi characterized the situation as “reallydifficult,” while Ardo Hansson, a member of its governing council,said Greece's situation was “quickly and sharplydeteriorating.”

German Chancellor Angela Merkel, for her part, was doubtfulTsipras would deliver a credible plan, and was willing to accept aGreek exit, according to two government officials familiar with herstrategy asking not to be identified discussing internaldeliberations. Greek voters last weekend emphatically rejectedausterity measures in a referendum called by Tsipras.

Whether Greece can expect a writedown of its outstanding debts,which exceed 170 percent of gross domestic product, remains a keypoint of contention.

Is Debt Relief an Option for Greece?

The European Commission's vice president for the euro, ValdisDombrovskis, said member states are open to considering debt relieffor Greece. Principal writedowns, though, would be difficult to getpast conservative figures including German Finance Minister WolfgangSchaeuble.

He said Thursday he's less optimistic than the French about“re-profiling”—generally understood to mean giving debtors moretime to pay off loans—as a solution for Greece. France, unlikeGermany, has recently struck a relatively dovish tone. “We thinkdebt relief of some form will be on the table,” but structured in afashion capable of winning German backing, Royal Bank of Scotlandanalyst Michael Michaelides said in a research report.

Even if Tsipras and creditors can reach a basic agreement, hisgreatest challenge may still lie at home. European leaders arelikely to insist that reform measures be passed into bindinglegislation by the Greek parliament, where lawmakers from Tsipras'sruling Coalition of the Radical Left, or Syriza, might vote againstthem.

A half-day meeting of Syriza lawmakers has been convened forFriday morning, in which the premier is expected to discuss theproposals to creditors.

The party was elected in January after it promised to fight the successivespending cuts and tax hikes that had been required for previousbailouts.

“Greece is obviously working to secure an immediate deal, but itmust be a deal that opens a window out of the current crisis,”Energy Minister Panagiotis Lafazanis, a hard-line Syriza member,said at a conference in Athens Thursday. “We don't want a thirdmemorandum with tough austerity measures.”

–With assistance from Rebecca Christie, Ian Wishart, CorinaRuhe, Karl Stagno Navarra, Marine Strauss, Stephanie Bodoni,Jonathan Stearns, and James G. Neuger in Brussels; Arne Delfs inBerlin; Eleni Chrepa, Marcus Bensasson, and Paul Tugwell in Athens;Constantine Courcoulas in Istanbul; and Eshe Nelson in London.

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