The deal Greece wants in Brussels has three parts: budget, debt and public investment. In the flurry of last-minute negotiations, conducted under threat of a bank run and capital controls, the media has been obsessed with the first.

The Greek newspaper Kathimerini carried the full Greek proposal on the budget for 2015-17, designed by Syriza’s negotiators to achieve the surplus target the IMF/ECB and EU have imposed. It is, as one of the ministers presenting it told me, “terrible”.

To avoid cutting services and pensions further, Syriza is preparing to hit businesses, consumers and employees with a mixture of tax and higher contributions to their pensions. It will also raise the retirement age to 67 over the next 10 years, and severely limit incentives to early retirement.

The proposal meets the top line targets of the lenders but last night they were still haggling over the precise structure of VAT, pensions and “product market reform” – which is the codeword for the IMF’s obsession with Greek pharmacies and bakeries.

While the proposal has caused outrage among the Greek conservatives who were only last week calling for a deal, and outrage among Syriza’s left-wing voters, and the 5,000 communist-led pensioners who staged a march last night, the real problem is bigger.

Everything we’ve seen so far suggests it will not work.

The lenders, as one senior participant in the talks put it to me, “do not do macroeconomics”. The models used in the EU’s negotiations assume that if you whack an €8bn tax rise on to an economy in recession it will at the very least only shrink by €8bn, and may even grow.

But the experience of Greek austerity – and this tax package is simply left austerity – shows you have to consider the “multiplier effects”. The IMF has already said its own model on this was flawed, and that the macroeconomic effect of cutting one euro could be not 50 cents but more like €1.50.

The reason the IMF and EU are trying to tinker with stuff like VAT and bakeries is because they suspect that a switch from harsh spending cuts to harsh, redistributive tax rises will have the same overall impact: the economy will shrink and the debt will get larger.

But a redistributive programme is all Syriza can sell to the people who voted for it. When they drew up this proposal the Greeks did so in the knowledge that it would need tens of billions of debt relief and tens of billions of structural funding from the EU to cushion the blow.

But the lenders are resisting. When it comes to debt, as one participant described it to me, the lenders are “each at war with the other”. The IMF wants debt write-offs; the ECB wants no debt write-offs.

The proposal being discussed is to swap €27bn of debt Greece owes to the ECB into a programme called the ESM, where redemptions are decades away and interest rates low. It would mean paying the ECB out of a fund owned by national governments.

I understand that, without some clear indication that debt relief is on the agenda, the Greeks cannot sign. Likewise, they are determined there should be an agreement to release structural funds for development projects from the European Commission.

They came to Brussels prepared to do a deal on the budget and debt, but to walk away and trigger financial armageddon, with aggressive defaults, if they got nothing.

It’s not petulance. Without a clear movement on debt relief and structural funds, they know their tax hike programme won’t work. And they can’t get it through their party like that in any case.

The pressure on Syriza from its grassroots voters is large, but variable. The pensioners and the communist party will protest most vigorously over pension and dock privatisation.

But the younger radical generation in Greece cares more about social issues: it want higher wages, more secure jobs, the right to civil partnerships and citizenship for second generation migrants. It wants the police cleared of fascists and the state cleared of corruption. It is also quite addicted to the entrepreneurial startup culture, to self-employment, to ducking and diving.

It believes that, absent the creation of a party like Ciudadanos in Spain, the only party that can deliver this modernisation and cleanup programme is Syriza.

The reflex of the older generation – inside Syriza and beyond – will be to default and fight. The reflex of its younger voters – no matter how much they hate the IMF and ECB – might be to accept the tax rises, accept the apologies of Syriza’s leaders – and urge them to get on with the minor social revolution they promised. Jailing corrupt politicians and businessmen, after all, does not cost you anything.

But it’s all academic unless Yanis Varoufakis comes out of Brussels with a package he can sell to himself. Without debt relief that’s impossible.

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