Alexis Tsipras warned on Tuesday that the failure to agree a rescue deal for Greece would spell the end of the eurozone as he submitted a revised package of reforms to negotiators in Brussels.

The Greek prime minister said if Greece fails, Europe's leaders will have a bigger disaster on their hands because "it will be the beginning of the end of the eurozone". Tsipras was speaking after what appeared to be a co-ordinated move by world leaders at the G7 summit to caution Greece against resisting demands by its troika of creditors - the European Commission, the International Monetary Fund and the European Central Bank - for further austerity and far-reaching reforms.

US president Barack Obama and German prime minister Angela Merkel said the Greek people needed to accept the need for painful reforms to put the country on a sound financial footing. French president Francois Hollande said that if the gap between the two sides was unbridgeable and Greece left the eurozone, the eurozone had put in place sufficient funds to cushion the blow.

In an interview with Italy's Corriere Della Sera, Mr Tsipras said the suggestion that a Grexit would be easily manageable was flawed. Instead, he argued, it would trigger the unravelling of the whole European project. "I think it's obvious. It would be the beginning of the end of the eurozone. If the European political leadership cannot handle a problem like that of Greece, which accounts for 2 per cent of its economy, what would the reaction of the markets be to countries facing much larger problems, such as Spain or Italy which has two trillion of public debt?"

He has also argued that a deal between Greece and her creditors could be close. “However, that would require the IMF, ECB and EC to relax their demands on pension reforms, and other proposals which would push Greece deeper into recession. “I think we’re very close to an agreement on the primary surplus for the next few years ... There just needs to be a positive attitude on alternative proposals to cuts to pensions or the imposition of recessionary measures.”

Mr Tsipras also pledged to discuss recent progress with Ms Merkel and Mr Hollande at the EU-Latin America summit on Wednesday. EU officials said a revised seven page plan had been received in Brussels ahead of further talks, without giving details of any new concessions by the radical leftist Syriza government in Athens.

It is understood the proposals include higher VAT rates on some products to bring the Greek budget surplus closer to the 1 per cent troika demand for 2015. But Mr Tsipras has resisted calls for a rapid rise in the effective retirement age, restricting early retirement applications by hundreds of thousands of Greeks.

Officials close to the bailout talks said a previous plan was being considered that extended the current rescue programme through to March 2016, when the International Monetary Fund’s participation in Greece’s bailout program officially expires.

Dusting off proposals for an extension would allow the leftist government to properly prepare for what everyone is now calling the “big agreement” - a third bailout of between €40bn to €50bn that Athens undoubtedly needs to survive economically in the coming years. The idea of an extension was floated at the highest level of German policy making several months ago, according to Greek insiders. Sources said delays in the current talks meant there was not enough time to agree a credible deal that will stick.

“After the summer we don’t have any big [DEBT]payments until March 2016, which in effect would be crunch time,” said one well-placed source who requested anonymity simply because speculation is now running so high. “That would be the time that the government would have to come to a big agreement.”

An extension would buy him time - and give the radical left leader some wiggle room to deal with his Syriza party’s hard left faction. Even if a “short-term” deal is eventually clinched, as it is expected to be in the coming days, the anti-austerity government will face enormous difficulties. Officials said any agreement will need to be approved by the governing party, passed by the 300-seat parliament and then implemented.

"It would be impossible to enforce with the current cabinet," Andreas Papadopoulos, a former spokesman with the small Democratic Left party, told state-run TV. "Tsipras would need to change his cabinet make-up," he said, insisting that disagreement on an ideological basis was so profound many of the reforms could never pass. Greek finance minister Yanis Varoufakis said a deal would have to be a permanent deal: "The Greek government wants an agreement-solution. It wants this to be the last negotiation. The Greek people deserve it."

- Guardian News and Media