Greece’s fraught bailout talks with its creditors took a dramatic turn early today, with the radical left government announcing a referendum in just over a week on the latest proposed deal and urging voters to reject it.
Prime Minister Alexis Tsipras announced the referendum in a televised address to the nation, following an emergency meeting of his cabinet.
“The Greek government has been asked to accept a proposal that places new unbearable burdens on the Greek people,” Tsipras said.
“Right now, we bear an historic responsibility concerning … the future of our country. And this responsibility obliges us to answer (the bailout creditors’) ultimatum based on the sovereign will of the Greek people.”
The move radically raises the stakes in Greece’s confrontation with its increasingly irate creditors, whom Tsipras accused of demanding new pension cuts, sales tax hikes and labor market reforms.
Worried Greeks have been pulling their money out of banks for months, and an estimated 4 billion euro left Greek banks last week. Long queues were seen forming outside several Athens cash machines and fuel stations yesterday and early today.
Tsipras said he would ask creditors today for an extension “of a few days” to Greece’s bailout program, which expires on Tuesday. In theory, without an extension, the country will lose access to any remaining bailout funds.
The referendum announcement also raises severe questions over whether the debt-crippled country will be able to remain solvent and in the 19-state eurozone.
Greece desperately needs a deal with its creditors. Without a 7.2 billion euro (USD 8.07 billion) bailout loan installment, which would only be available if there is a deal, the country will be unable to make a 1.55 billion euro payment to the International Monetary Fund on Tuesday, and even bigger payments later July.
A Greek official close to the bailout negotiations said the country was unlikely to pay the IMF on Tuesday, adding that IMF rules allow a certain period during which a country is considered to be in arrears.
By essentially defaulting on its debt mountain, Greece would likely see its banks collapse, as they depend on emergency European Central Bank funding.
The government could soon run out of cash, face huge difficulties in paying pensions and civil servant salaries, and that could force it to leave the eurozone and adopt a weak national currency.
But the country imports most key consumer goods, whose cost would rocket beyond most Greeks’ reach under a new currency.