ATHENS/BRUSSELS (Reuters) - Greece’s European partners shut the door on extending a credit lifeline to Athens, leaving it facing a default that could push it out of the euro after the leftist government rejected tough lender demands and put their bailout deal to a referendum.
Finance ministers of the other 18 countries sharing the euro met for the first time without Greece and flatly rejected its pleas to extend an expiring bailout until after the referendum on July 5 and setting the stage for Athens to default on a crucial IMF payment on Tuesday.
The 18 pledged to do whatever it takes to stabilize the common currency area and said they were in much better shape to do so than at the height of the euro zone crisis a few years ago. In a formal statement, they also implicitly urged Greece to impose capital controls to stabilize its banking system.
The rejection of an extension piled huge pressure on Greek banks, which depend on central bank support to remain afloat, with long lines forming in front of cash machines as people rushed to pull their money out while the banks were still operating normally.
After its surprise decision to call a referendum on the bailout, Athens asked for an extension of Greece’s bailout program beyond Tuesday, the day it must pay 1.6 billion euros to the International Monetary Fund or default.
But the other 18 members of the euro zone unanimously rejected the request, freezing Greece out of further discussions with the European Central Bank and the IMF on how to deal with the fallout from a historic breach in the EU’s 16-year-old currency.
The swift rejection was a startling demonstration of the degree to which Tsipras had alienated the rest of the currency bloc with a final-hour announcement that upended five months of intense talks.
The Eurogroup of finance ministers shut Greece’s Yanis Varoufakis from a meeting in Brussels and issued a statement without him, accusing Athens of breaking off negotiations unilaterally.
“The current financial assistance arrangement with Greece will expire on June 30, 2015, as well as all agreements related to the current Greek program,” it said, making clear its refusal of a grace period to hold the vote.
Varoufakis said the refusal to provide an extension “will certainly damage the credibility of the Eurogroup as a democratic union of partner member states”.
“I‘m very much afraid that damage will be permanent.”
The Greek parliament met to approve the referendum, with pro-European opposition parties uniting in condemning the decision and fuelling speculation that Tsipras’ leftwing government may have to resign if voters back the bailout in the July 5 referendum.
Greek President Prokopis Pavlopoulos was expected to meet former conservative Prime Minister Antonis Samaras on Sunday.
The offer from creditors requires Greece to cut pensions and raise taxes in ways that Tsipras has long argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed.
Caught between fears of economic collapse and defiance of the demands from international creditors, many Greeks expressed shock, although opinion polls published in Sunday newspapers pointed to a majority in favor of accepting the bailout terms.
“They are trying to kill us. I don’t think this is a dilemma on whether to stay or leave the euro zone. But those bailout terms cannot be accepted,” said 70-year-old George Kambitsis. “We don’t have any money, but they want to take more from us. How will we eat, how will we live?”
However voters in other euro zone states -- including the bloc’s economic powerhouse Germany, other southern states which have suffered austerity in return for EU cash and poor eastern countries with living standards much lower than Greece -- have lost patience.
Many questions remained over the referendum, which is being called over the terms of a bailout offer that may no longer be on the table.
But with fears growing that the foundations of the euro zone could be fatally weakened if Greece were forced out, French Finance Minister Michel Sapin insisted that Paris, at least, was still prepared to talk.
“The 18 countries, apart from Greece, all said clearly that Greece was in the euro and should remain in the euro whatever the difficulties of the moment,” he said.
Although European officials have repeatedly insisted that financial firewalls built during the euro zone debt crisis of the past six years would limit the impact of any “Grexit”, the longer-term effects are completely unknown.
Jeroen Dijsselbloem, the Dutch finance minister and chair of the Eurogroup, said Greek lawmakers should think about whether the referendum was wise before agreeing to hold it, essentially appealing directly to the Greek parliament to defy Tsipras when it votes on approving the measure later on Saturday.
Underlining the mutual incomprehension that has marked months of often angry exchanges between the Syriza government and its European partners, Finance Minister Yanis Varoufakis was still holding out hopes of a deal.
“In these crucial moments, the Greek government is fighting for there to be a last-minute deal by Tuesday,” he said after the euro zone had rejected further talks and said it would cut off financial support from June 30.
He added the government would be prepared to recommend that voters backed the deal if lenders agreed to improve the terms.
The euro zone finance ministers met in Brussels for what had been intended as a final negotiation for a deal.
But after they were blindsided by Tsipras’s surprise middle-of-the-night announcement that he rejected their offer and would put it to voters only after Tuesday’s deadline, one after another said all that remained to discuss was “Plan B” - how to limit the damage of default.
“We have no basis for further negotiations,” German Finance Minister Wolfgang Schaeuble said ahead of the meeting. “Clearly we can never rule out surprises with Greece, so there can always be hope. But none of my colleagues with whom I’ve already spoken see any possibilities for what we can now do.”
Finland’s Alexander Stubb called it “potentially a very sad day, specifically for the Greek people. I think with the announcement of this referendum we’re basically closing the door for any further negotiations.”
With most Greek banks closed for the weekend, there was no sign of panic on the streets of Athens. Government officials said there was no plan to impose capital controls that would limit withdrawals.
But police tightened security around bank teller machines as lines formed at some in the darkness almost as soon as Tsipras’s early hours televised speech was finished. More than a third of automated teller machines across Greece ran out of cash on Saturday before they were replenished, banking sources said.
The Bank of Greece said it was making “huge efforts” to ensure the machines remained stocked.
Additional reporting by Karolina Tagaris, Vassilis Triandafyllou, Matthias Williams, Lefteris Papadimas and Gina Kalovyrna in Athens, Erik Kirschbaum in Berlin, Robin Emmott, Alastair Macdonald, Barbara Lewis, Robert-Jan Bartunek, Philip Blenkinsop, Alexander Saeedy, Renee Maltezou and Jan Strupczewski in Brussels; Writing by James Mackenzie and Peter Graff; Editing by Alastair Macdonald and Andrew Heavens