Germany has conceded Greece needs debt relief, as the cash-strapped country races to submit a reform plan in time for its midnight deadline.
"Debt sustainability is not feasible without a haircut and I think the IMF is correct in saying that," German Finance Minister Wolfgang Schaeuble told a conference in Frankfurt.
However he also said "there cannot be a haircut because it would infringe the system of the European Union."
Earlier today European Council president Donald Tusk ramped up pressure on the parties to reach an agreement, saying Greece's creditors must step up if it puts forward a "realistic proposal".
"The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. Only then will we have a win-win situation," Tusk said.
"Otherwise, we will continue the lethargic dance we have been dancing for the past five months."
Tusk joined other international heavyweights such as the IMF and US treasury secretary Jack Lew who have previously called for debt restructuring.