The shock announcement by the left-wing Greek Prime Minister Alexis Tspiras to call a referendum on Greece's creditors' austerity measures, marked the most dramatic twist yet in five-month negotiations between Greece and its lenders.
The decision to put the austerity package to a public vote on July 5 has steered the cash-strapped nation into uncharted waters and risks a default and capital controls as hopes for an agreement fade.
“Our responsibility is for the future of our country. This responsibility obliges us to respond to the ultimatum through the sovereign will of the Greek people,” Tsipras said in a televised address to the nation in the early hours of Saturday morning.
Tsipras said he would respect the outcome of the vote but made his position clear by arguing that the lenders' demands “clearly violate European social rules and fundamental rights”, would smother Greece's ailing economy and are aimed at the “humiliation of the entire Greek people”.
A meeting of Eurogroup (eurozone finance ministers) called to discuss the crisis on Saturday afternoon only served to emphasise the distance between Greece and its creditors. Before the meeting German Finance Minister Wolfgang Schaeuble said that by calling for a referendum on the proposals to keep Greece solvent – and by advising Greeks to reject them – the country appears to have ended the negotiations on its bailout program.
Schaeuble said that “the negotiations apparently have been declared at an end” by Prime Minister Alexis Tsipras. Schaeuble said that, “if I understood correctly … we now have no basis for further negotiations.”
When Greek finance minister Yanis Varoufakis emerged from the meeting it was clear that no agreement had been reached. “The refusal of the Eurogroup today to endorse our request for an extension of the agreement so as to allow the Greek people to deliver their verdict on the proposals — especially given that there is a high probability Greeks will go against our recommendation and vote in favour — will certainly damage the credibility of Eurogroup as a democratic union of partner member states and I'm very much afraid that damage will be permanent.”
A short statement released by Eurogroup shortly after the meeting stated, “The current financial assistance arrangement with Greece will expire on 30 June 2015.”
French Finance Minister Michel Sapin stressed after the talks that all of its members wanted Greece to remain in the eurozone.
“This is not a Greek exit from the euro zone,” he told reporters. “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.”
The European Central Bank will meet on Sunday to discuss the crisis. Some observers suggest the bank may extend the bail-out to avoid a collapse in the banking system.
Greece has to pay €1.6bn to the IMF on Tuesday. Without new funds, there are fears Greece may leave the euro and its economy may collapse.
The crisis threatens to overshadow next week's EU summit, which starts on Thursday, where leaders will also discuss the European migrant crisis and UK PM David Cameron's renegotiation aims.