By Matthew Holehouse in Brussels and Mehreen Khan 27 June 2015
Stunned lenders vow not to extend Greece's bail-out and say they are prepared to suffer the consequences of "bombshell" referendum decision
Greece stands on the brink of a banking collapse and disorderly exit from the euro after its creditor powers lashed out at Athens' plans to hold a referendum by vowing to pull the plug on the country in just three days.
Eurozone finance ministers last night withdrew tentative plans to release €15bn to the debtor country, after Alexis Tsipras, the Greek prime minister, said he would put the “humiliating” package of austerity demands to a public vote on July 5. Unless the cash-strapped country can scramble together €1.55bn Tuesday, it will become the first developed country in history to default on its International Monetary Fund loan on June 30. On the same day, it's €240bn rescue programme will also formally expire throwing its banking system into turmoil.
Creditors powers, stunned by Mr Tsipras's audacity to call a public vote, rejected his pleas to extend the programme for a few weeks to allow the vote to be held next Saturday.
The voice of Jeroen Dijsselbloem, the head of the Euro group, cracked with emotion as he announced that his 18 colleagues had rejected Greece’s demand.
“We must conclude that however regretful, the programme will expire on Tuesday night,” he said. “It will expire.”
A wounded Mr Dijsselbloem added that even in the event of a yes vote by the Greek people, creditors could no longer cooperate with radical Leftist government due to "grave concerns about credibility".
But a defiant Mr Tsipras stood firm in the face of the threats of financial ruin. In a phone call with German leader Angela Merkel he promised to push ahead with the referendum because "democracy is an ultimate value in Greece."
"Whatever decision the Euro group takes, the Greek people will have oxygen next week and they will survive," he said.
Later on Saturday, Mr Tsipras said the referendum would take place "whether our partners like it or not".
He said he was sure the Greek people would say a "resounding no" to the "insulting" ultimatums laid down by the country's creditors.
In calling for a snap vote on Friday night, Mr Tsipras's government landed a fatal and final bloody nose to its partners, after months of poisonous wrangling.
European officials accuse Mr Tsipras of torpedoing negotiations with his shock decision to call a unilateral vote without informing his paymasters.
One EU official called the move a midnight "bombshell".
Of the 18 member states gathered in Brussels, only France broke ranks and called for an extension to be granted.
After the talks, French finance minister Michel Sapin said Greece's "destiny" remained in the euro, offering Paris up as a mediator in talks between Athens and its creditors.
All eyes now turn to the European Central Bank, which provides the last remaining financial link between Greece and the single currency.
The ECB is poised to make a decision on its funding to the banking system by Sunday evening. Should it decide to cap its liquidity assistance, which stands at €88bn, the Greek banking system will face imminent financial ruin.
The Greek government will likely to be forced to implement some form of capital controls as bank deposits have fallen to an 11-year low.
Many Greek banks quickly moved to impose online withdrawal limits in the early hours of Saturday morning. Hundreds queued outside ATMs to withdraw their savings, leaving cash machines empty and forcing banks to shut their doors.
People wait in a queue to withdraw money from an ATM outside a branch of Greece's Alpha Bank in Athens, Greece, 27 June
Finance ministers later reconvened for emergency talks to protect the rest of the bloc from a chaotic Greek exit. For the first time in the 16-year history of the euro group, Greece was not privy to the talks as Mr Varoufakis left negotiations of his own accord, said the euro group chairman.
We “stand ready to do whatever is necessary to ensure financial stability”, promised Mr Dijsselbloem.
"Member States intend to make full use of all the instruments available to preserve the integrity and stability of the euro area."
George Osborne, the Chancellor, was being briefed by officials who have spent weeks working on British contingency plans.
Mr Dijsselbloem warned the Leftist government faces collapse, and suggested it was deluding its public by claiming they could win a better deal by rejecting the bail-out offer in a public vote.
“If there is a ‘no’, the suggestion might be to Greek people that there is a better deal ahead, and negotiations can open.
“But in the intervening period, the situation in Greece will deteriorate very rapidly. How the Greek government thinks it will survive and deal with its problems in that period, I do not know.”
Euro group president Jeroen Dijsselbloem hinted the Greeks had exhausted the trust of their partners
The fresh crisis came just a day after the European Council, in an act of hubris, awarded Jacques Delors, the architect of the currency, the title of Honourary Citizen of Europe. The turmoil also comes in the same week the Eurozone issued its prized blueprint on "Completing Economic and Monetary Union".
Meanwhile more than a third of the Greece's ATMs ran dry on Saturday as Greeks rushed to withdraw their savings from banks that may now have weeks to survive.
Queues also amassed outside cash machines in the Greek parliament as the country is now in the throes of a slow moving bank run after the referendum was announced in the early hours of Saturday morning.
Mr Tsipras and Leftist government will support a ‘No’ vote in the plebiscite. It is a path that almost certainly leads to default on Greece’s colossal debts and a fatal breach of economic and monetary union.
"These proposals, which clearly violate the European rules and the basic rights to work, equality and dignity show that the purpose of some of the partners and institutions was not a viable agreement for all parties, but possibly the humiliation of an entire people," said Mr Tsipras.
"The people must decide free of any blackmail.”
The decision was met with fevered delight by Syriza's fellow Left anti-austerity parties across Europe.
Pablo Iglesias, the head of the Spanish anti-austerity party Podemos which is expected to surge in this year’s polls, hailed the “brave” stand against the “mafia operation of financial terrorism” of the IMF.
But the move was the final straw for exhausted European finance ministers, who had convened in Brussels for talks intended to be a last chance at securing a deal.
"I would argue that Plan B becomes Plan A," said Finland's Alexander Stubb, referring to capital controls and preparations for a chaotic exit from the euro.
Wolfgang Schauble, the hard-line German finance minister long seen as the Greek nemesis in this five-year tragedy, said Mr Tsipras had “unilaterally ended” the chance of a rescue deal.
"The willingness of the colleagues, who last night said goodbye to Mr Tsipras and who couldn't have expected what he announced on TV in the evening, isn't very big."
Yanis Varoufakis, the Greek finance minister, insisted he was “still fighting” for a deal and begged the Eurozone leaders to offer his country an extension before Tuesday’s deadline.
Should they continue to refuse, it is a decision which will cause “permanent damage” to the European Project, he warned.
As he got into his car for the airport, Mr Varoufakis said: “This is a sad day for Europe. But we will overcome it.”