With EU leaders refusing to consider a sudden new bailout demand from Alexis Tsipras prior to Sunday’s referendum, Greece looks set to default

Greece is on the brink of default and insolvency as €240bn of bailout funding comes to an end, with the country either unable or refusing to make a €1.6bn payment to the International Monetary Fund. The failure to resolve the crisis by Tuesday night’s deadline could be a devastating psychological blow to the European project.

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Marking the lowest of lows in the eurozone’s five-year sovereign debt saga, Greece faced financial collapse as a deadline of midnight (Brussels time) approached without any hope of its radical leftist government, led by prime minister, Alexis Tsipras, striking a deal with the country’s creditors.

There will be no more IMF lending after the failure to repay the debt. And for the first time since 2010, Greece is now without a eurozone and European Central Bank package keeping it afloat. The country goes to the polls on Sunday in a referendum called by Tsipras at short notice to vote on whether to accept creditor bailout terms, even though these are no longer on the table.



The Greek government insisted on Tuesday that the ballot meant Athens remained at the negotiating table, while rejecting the terms on offer. Eurozone leaders maintained the vote was tantamount to a choice of whether or not to stay in the single currency.

After stunning fellow EU leaders by calling the referendum on Friday night, Tsipras delivered a last-minute bombshell by writing to eurozone leaders demanding a new, separate two-year bailout, hours before the current arrangements lapsed.



Athens and Brussels buzz with rumours that Tsipras is about to get on a plane to EU headquarters

Eurozone finance ministers talked by teleconference to consider the sudden Greek demand. But they appeared to be going through the motions. They are unlikely to pre-empt the result of Sunday’s referendum by committing either way. In Berlin, chancellor Angela Merkel signalled there could be no talk of a new bailout for Greece until after Sunday’s vote.

Facebook Twitter Pinterest No campaigners in Syntagma square, Athens, on Sunday. Photograph: Chrissa Giannakoudi/Demotix/Corbis

Tsipras called the president of the European commission, Jean-Claude Juncker, on Monday evening to explore a possible last-minute way out of the crisis after the Greeks abandoned talks with the eurozone late on Friday. Tsipras was told he could accept the creditors’ slightly amended final offer from last Friday and that he would have to campaign for a yes vote in the referendum if he was serious about rescuing a bad situation.

“We see the referendum as part of the negotiation process, not in lieu of it. We look forward to greater flexibility in the days to come,” responded Euclid Tsakalotos, Greece’s chief negotiator, as he listed several reasons why the terms from the so-called troika of European commission, ECB and IMF should be spurned.

On a rollercoaster of a day of gambles, demands and standoffs that took brinkmanship to new levels, Tsipras’s aides remained in telephone contact with commission officials for most of Tuesday before the Greek leader delivered his final move.

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He asked for bridging loans to get him through the IMF non-payment problem and for a new two-year programme covering almost €29bn in debt-servicing costs, as well as debt relief measures. There was nothing in his letter to Juncker, Klaus Regling, the head of the eurozone’s bailout fund, and Pierre Moscovici, the commissioner for monetary affairs, to indicate what his government was prepared to accept in return for a new deal.

Any such arrangement would come with tight strings attached. Tsipras has already rejected the creditors’ terms. If he wins his no vote on Sunday, the Germans and others believe he has burnt his boats and has bid farewell to the euro. If he loses to a large yes vote, however, eurozone leaders would be keen to strike a new deal, but not with Tsipras, whom they do not trust to deliver.

Five months of negotiations on the current expiring bailout collapsed at the weekend. A new rescue package would take time to negotiate with no guarantees of a successful conclusion. An agreement on more loans for Greece would need to pass through several eurozone parliaments, including the Bundestag in Berlin, where it would get a rough ride.

Juncker earlier told Tsipras that a last-minute deal was still possible if Athens agreed to sign up to the creditors’ proposals presented last Friday. He also dangled the prospects of debt relief for Greece and a €35bn “new start for jobs and growth” programme.

That appeared to be old wine in new bottles. The €35bn is not new money, while the debt-relief suggestion is the revival of a conditional offer to the previous Greek government from 2012.

The €35bn programme is based on recycled funds already earmarked for Greece in the EU budget, as well as a notional amount of private investment – an ambitious target for Greece’s cash-starved economy.

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In the past five months, Tsipras has persistently blocked agreement on the current bailout that would have released €7.2bn in return for meeting fiscal targets, spending cuts and tax rises. He has aimed to get the current programme dropped and wrapped into a new one involving debt relief.



Since the weekend, eurozone leaders desperate to avoid the blame for the departure of the first country from the currency have been declaring that the door remains open to more talks. Tsipras’s gambit on Tuesday tested the credibility of that pledge.

Athens and Brussels buzzed with rumours that Tsipras was about to get on a plane to EU headquarters. The Greek government confirmed it would not make the €1.6bn loan instalment, which was due to the IMF by 6pm Washington time (11pm BST, midnight in Brussels and 1am in Athens). The Washington-based fund has long said that late payers do not get a grace period. Failure to pay means Greece will become the first developed nation in history to default to the IMF and it will join a club of countries in arrears that includes Sudan, Somalia and Zimbabwe.

Greece owes the IMF $26bn (€23bn), almost four times greater than the total value of overdue funds in the IMF’s history, according to the Council on Foreign Relations. While one missed payment is not expected to trigger a wave of defaults, it is a defining moment in the Greek crisis that some European leaders fear could unravel 60 years of European integration.