Greece’s place in the euro currency bloc looked increasingly shaky on Saturday, when eurozone countries rejected a monthlong extension to its bailout program and the prime minister called for a risky popular vote on the country’s financial future.
Worried Greeks queued outside banks for cash amid the uncertainty, with eurozone finance ministers deciding to hold a meeting without Greece to assess how to keep the euro currency union stable in the face of heightened risks that Greece could drop out.
Prime Minister Alexis Tsipras shocked Greece’s creditors late Friday when he called for a referendum in a week on whether to accept the reforms that the rescue lenders want in return for more financial aid. The country’s bailout program ends Tuesday. Without an extension or more loans from creditors, Greece is likely to be in arrears on a debt payment Tuesday and its banks face the risk of collapse.
The Greek government’s call on the people to vote against a proposed bailout deal from international creditors on July 5 angered many of its eurozone partners.
“We must conclude that, however regretful, that the program will expire on Tuesday night. That is the latest date that we could have reached an agreement,” said Jeroen Dijsselbloem, the top eurozone official, effectively ending five months of fruitless negotiations.
“The Greek authorities have asked for a month extension. But in that month there can be no disbursements,” he said. “How does the Greek government think that it will survive and deal with its problems in that period? I do not know,” Dijsselbloem said.
Greek Finance Minister Yanis Varoufakis insisted that Athens and lenders still had time to improve the deal – and avoid a referendum. “There is no reason why we can’t have a deal by Tuesday. If the deal is acceptable we will recommend a positive vote,” he said.
But the other ministers had no time for that.
“It’s a sad day for Europe but we will overcome it,” Varourfakis said upon leaving while his counterparts continued talks.
The sides are haggling over the reforms the country needs to make in exchange for more financial aid but have managed to only increase uncertainty over the country’s future.
Greece has a debt due on Tuesday and its bailout program expires the same day, after which it is unclear whether its banks would be able to avoid collapse, an event that could be the precursor to Greece leaving the euro.
The Greek Parliament is debating and will vote at midnight Saturday on the government’s request for a referendum.
Across Athens, people started flocking to cash machines shortly after Tsipras announced the referendum around 1 a.m. local time. The queues grew the next day, though the number of people and the availability of cash varied widely. The Bank of Greece assured in a statement Saturday that the flow of cash will not be interrupted.
The concern over what awaits the country in the hours and days to come was palpable. At one branch of Pireaus Bank in central Athens, one of very few that opens on Saturdays, about 50 people queued up in the early morning before they found out the bank would not open at all. An elderly woman fainted.
The referendum will ask Greeks to vote on a proposal of reforms that the country’s creditors made on Thursday. The Greek government rejected it as imposing cuts that are too harsh on the general population.
The Greek government said it would recommend Greeks vote “no” in the referendum, but Varoufakis was far from certain the voters would agree. He spoke of “the high possibility that the Greek people will vote against the advice of the Greek government.
What would happen in that case – whether Greece would have to leave the euro or try to renegotiate more time with creditors – is unclear.
Eurozone officials were openly frustrated by the Greek move and increasingly pessimistic.
If it became accepted among European politicians that Greece could not agree on a rescue deal, the European Central Bank could decide to end the emergency credit that it allows Greek banks to draw on. The banks would likely collapse and the Greek government would have to support them itself. Penniless, the government would have to revert to printing a new currency, effectively drawing the country out of the euro union.
Such a move would put the country through a new era of economic pain. With the new currency less valuable than the euro, the government would have to write off a chunk of its foreign loans – mainly owed to eurozone countries – and many companies and households would go bankrupt. Experts predict a long and deep recession in a country that has already been through five years economic depression.
The uncertainties of all this would roil European and global markets, though experts are divided on the extent. Some say Europe is better equipped to handle a Greek euro exit, but others say it is unclear what might happen. The euro dropped in value slightly on international markets after the referendum was called.
As the country came to grips with what lay ahead, former prime minister Costas Karamanlis broke a longstanding silence and criticized the government.
“The nation’s most vital interests demand that the country remains at the heart of Europe. The EU’s actual shortcomings do not, in any way, negate this…” Karamanlis said. “Foolish choices that undermine this principle push the country to adventures, with unpredictable and possibly irreversible consequences.”
In the streets of Athens, views were mixed on the merits of holding a referendum.
“The people are not in a position to decide. Those who are in position to decide are the ones that know a bit more and they must explain and simplify the issues for the people,” said Grigoris Kanellopoulos, 41, a street seller of bagels.
Athina Kontosozou, 56, has already made up her made about how she will vote.
“No (to the creditors’ proposals), no to any more measures. We don’t know what will happen (after the referendum). Let’s hope that things will be better. And they will get better. We believe it.”