BRUSSELS: Eurozone leaders tried to thrash out a Greek bailout deal in marathon overnight talks Monday after giving Athens an ultimatum to accept harsh economic reforms or become the first country to be cast out of the single currency.
EU president Donald Tusk introduced a "compromise proposal" in a bid to break the deadlock, but after nearly 16 grueling hours of talks, dawn broke in Brussels without an agreement.
Without a deal Greece's banks could run dry within days, but leftist Prime Minister Alexis Tsipras was pushing back against demands to take his tax and pension reform plans further.
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Europe appeared at its most divided for decades as Athens and its eurozone partners struggled to agree steps for Greece to take in exchange for its third bailout in five years, a three-year rescue plan worth up to €86 billion, including the enactment of reforms in parliament by Wednesday.
A Greek government official said the terms drafted on Sunday by the euro finance ministers were "very bad", amid concerns they would effectively take control of much of Greek finances away from Athens.
Later a European source said a "four-way" agreement had been reached between Greek Prime Minister Alexis Tsipras, German Chancellor Angela Merkel, French President Francois Hollande and EU president Donald Tusk that was then put to the other leaders.
The Greek official however said there were still issues to resolve on the proposal, including the involvement of the IMF and a call for Greece to park assets of up to €50 billion in a fund in Luxembourg for privatisation.
Arriving for what was billed as a last-chance summit Sunday, Merkel said there would be "no agreement at any price", complaining of a loss of trust in Athens and warning of "tough negotiations" ahead.
Tsipras, who was elected in January vowing to end five years of austerity tied to two previous bailouts since 2010, said a deal was "possible".
He has become a standard-bearer for leftist parties across the continent who say the austerity policies championed by Brussels undercut growth and cause massive unemployment.
The eurozone turned the screws after finance ministers finished two days of intense talks on Greece's own reform proposals drawn up to satisfy its international creditors -- the EU, the European Central Bank and the International Monetary Fund.
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The Greek parliament approved the plans on Saturday, despite them being similar to those rejected by Greeks in a controversial referendum on July 5.
But for the eurozone to consider a third bailout package, Greece would now have to push through new even tougher laws by Wednesday, Finland's Alex Stubb said after the eurozone finance ministers meeting.
Athens would have to introduce harsh conditions on labour reform and pensions, VAT and taxes, and measures on privatisation, he said.
For the first time in the history of the single currency, the Eurogroup even proposed a temporary Greek exit from the euro, an idea first floated by Germany.
"In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring," said a document obtained by AFP.
Diplomatic sources said that as the talks progressed it was no longer certain that this provision would be in the final statement.
Other measures include letting the "troika" of creditors back on the ground in Athens after they were expelled by Tsipras's government, and getting creditors' approval for any legislation affecting issues covered by the bailout.
The crisis has exposed tensions between the eurozone's two biggest powers with pro-austerity Germany going head to head with France, which has been supportive of Greece during the crisis.
French President Francois Hollande said Paris would do "everything" to keep Greece in the euro and ruled out the "temporary Grexit" proposal.
Five years have elapsed since the Greek debt drama began, but the latest installment has opened deeper-than-ever rifts in the European single currency, the heart of the post-war dream of a politically unified Europe.
In Greece, there is growing alarm at capital controls that have closed banks and rationed cash at ATMs for nearly two weeks, leading to fears that food and medicine will soon run short.
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"We don't sleep, everybody's worried," a Greek pensioner said, watching with concern the events taking place in Brussels several thousand kilometres away.
The ECB is providing emergency liquidity to keep Greek banks afloat but has frozen the limit, with fears that failure to reach a deal could cause it to shut off the taps completely.
Despite the clear tensions and uncertainty in Brussels, the reaction on the financial markets was muted.
The euro eased in early Asian trade Monday and stock markets were mixed.