A Greek exit or Grexit from the euro zone of nations sharing a single currency, and possibly the European Union, is close at hand after bailout talks between EU leaders and Greece failed.
This means the current program providing Greece with emergency funds — already extended for four months — will end on Tuesday, said Jeroen Dijsselbloem, Dutch finance minister and president of the eurogroup of 19 nations, on Saturday during a live-streamed press conference.
Greece has been seeking nearly $10 billion in rescue funds to keep the country afloat.
In exchange, Greece’s creditors — the International Monetary Fund, the European Commission and the European Central Bank — demanded Greece stick to a plan of tax hikes and pension cuts.
“However regretful, the program will expire on Tuesday night. That is the latest date we could have reached an agreement,” Dijsselbloem said before the eurogroup reconvened for a meeting without Greece to discuss how they can now safeguard the financial integrity of Europe.
Greece is scheduled to make a $1.7 billion payment to the IMF on Tuesday and without assistance a default is most certain. This could leave Greece in a state of emergency, unable to pay the salaries of police and other necessary workers.
In a stunning move, Greek Prime Minister Alexis Tsipras instead announced that Greece would hold a referendum on the latest EU bailout deal offered to them on Sunday, July 5.
It is unclear what exactly the Greek people will be deciding on given the bailout expires this Tuesday.
Greece now faces bankruptcy, a return to the drachma and financial chaos that threatens to bleed into the global markets.
Lineups at Greek bank machines are already long as Greeks start to drain their accounts of all the liquid cash they can get their hands on. The fear is capital controls will be placed on every Greek citizen’s bank account as the government searches for cash to pay its creditors.
There were reports from the Greek press on Saturday that machines were running out of banknotes and that the outflows of cash since Friday was nearly 1 billion euros.
Late Saturday, France stepped forward to act as a mediator between Greece and the EU, as French Finance Minister Michel Sapin insisted talks could go on.
Speaking from Athens, Miranda Xafa, a former chief economic adviser to Greek Prime Minister Konstantinos Mitsotakis, from 1991 to 1993, questioned whether or not there would actually be a referendum.
“The opposition questions both the legal basis and the purpose of a referendum, given that the creditors have withdrawn their proposal and do not plan to extend the program beyond its expiry on Tuesday,” said Xafa, a senior fellow with the Centre For International Governance Innovation.
Xafa said Tsipras is trying to shift the “responsibility for the botched negotiations to the Greek voters, without explaining that a no vote to the creditors proposal (which is now off the table) leads straight to a Grexit.”
Even if the Greek people were vote yes in the referendum, Dijsselbloem reacted negatively. The Tsipras government has a serious credibility problem as they have strongly campaigned against the EU’s proposals, he said.
“If a yes, the question is, who are we trusting? Who are we working with to then implement the program?” he asked.
The Greek authorities asked for a further one-month extension but in that time there will be no more financial payouts to Greece to keep them afloat, he added.
“The Greek authorities will ask for a month extension but in that time there will be no disbursements. The program is still not on track. How does the Greek government think it will survive and deal with its problems in that period? I do not know,” he said.
Greek Finance Minister Yanis Varoufakis told reporters that if the Greek people vote yes for the proposal, the Tsipras government would sign on the bottom line.
The Greek people tell us what to do, Varoufakis said.
He denied the referendum would determine the fate of Greece in the euro.
Varoufakis said there are no provisions in European law outlining a country’s exit from the monetary union and that it would be a violation of European treaties.
For the last few months, what was proposed to Greece by the EU did not contain a plan for instilling hope for investors, for consumers or depositors, he added. Instead, all it led to was more reviews.
Varoufakis said the Tsipras government did not have the mandate to decide on whether or not the EU deal would be accepted without asking the people of Greece.
“I reminded my colleagues we were elected on a basis of a 36 per cent vote … for a momentous decision like that we believe 50 per cent plus one is what is necessary.”