Greece announces referendum on bailout deal

Greece's fraught bailout talks with its creditors took a dramatic turn early Saturday, with the government announcing a referendum in just over a week on the latest proposed deal and urging voters to reject it.

Prime Minister Alexis Tsipras announced the July 5 referendum in a televised address to the nation, following an emergency meeting of his cabinet.

"The Greek government has been asked to accept a proposal that places new unbearable burdens on the Greek people," Tsipras said. "Right now, we bear an historic responsibility concerning ... the future of our country. And this responsibility obliges us to answer (the bailout creditors') ultimatum based on the sovereign will of the Greek people."

The move radically raises the stakes in Greece's confrontation with its increasingly irate creditors, whom Tsipras accused of demanding new pension cuts, sales tax hikes and labour market reforms.

Worried Greeks have been pulling their money out of banks for months, and an estimated 4 billion euro left Greek banks last week. Long queues were seen forming outside several Athens cash machines and fuel stations late Friday and early Saturday.

Tsipras said he would ask creditors Saturday for an extension "of a few days" to Greece's bailout program, which expires on Tuesday. In theory, without an extension, the country will lose access to any remaining bailout funds.

Without a 7.2 billion euro bailout loan installment which would only be available if there is a deal the country will be unable to make a 1.55 billion euro payment to the International Monetary Fund on Tuesday, and even bigger payments later July.

A Greek official close to the bailout negotiations said the country was unlikely to pay the IMF on Tuesday, adding that IMF rules allow a certain period during which a country is considered to be in arrears.

By essentially defaulting on its debt mountain, Greece would likely see its banks collapse, as they depend on emergency European Central Bank funding. The government could soon run out of cash, face huge difficulties in paying pensions and civil servant salaries and that could force it to leave the eurozone and adopt a weak national currency. But the country imports most key consumer goods, whose cost would rocket beyond most Greeks' reach under a new currency.

'An absolute impasse'

Opposition leader Antonis Samaras accused Tsipras' government of advocating an exit from the eurozone and the European Union.

"Mr Tsipras has led the country to an absolute impasse," he said. "Between an unacceptable agreement and leaving Europe."

But government officials insisted that the referendum would not be about currency change.

"It's not a question of yes or no to the euro ... euro or drachma," Defence Minister Panos Kammenos told state ERT TV, referring to the old Greek currency. "There is no process for Greece to leave the euro," he added, referring to eurozone rules which contain no provision on a country being forced out of the currency club.

An emergency session of Parliament will be called at noon Saturday to ratify the decision.

"The question will be acceptance or rejection of (the bailout creditors') proposal" for a new deal, Tsipras said. His government had already said it rejected the latest proposals from representatives of the European Commission, ECB and IMF.

Later on Saturday, finance ministers from the 19-member eurozone were due to meet in Brussels for what had been billed as a last attempt to reach a mutually agreed deal. It is unclear whether that meeting will now go ahead, but Athens said its senior bailout negotiators will meet Saturday with ECB head Mario Draghi.

'All Greeks will vote no'

Development Minister Panayiotis Lafazanis urged Greeks after the late-night cabinet meeting to vote against the creditors' proposal.

"The answer of the Greek people will be a resounding no," he told reporters. "All Greeks will vote no."

On Friday, officials in Brussels said Athens had agreed to key reforms that are close to what creditors have demanded.

The creditors in return offered Greece a five-month extension to its bailout program.

According to the text of the creditors' proposals seen by The Associated Press, Athens was offered an extension to its bailout program through November, with loans worth 15.5 billion euros. That includes the 7.2 billion euros from the existing rescue program and money left over from a bank rescue fund.

The European Central Bank has been supporting the Greek banks and frequently increased that aid this week as they struggled to cope with the drain of deposits. But it would be under pressure to pull the plug on the banks if Greece's bailout program expired and there was no prospect of a financial rescue for the country.

Government officials early Saturday dismissed fears of a bank meltdown or imposition of capital controls.

Elected in January, Tsipras' left-wing government has long been adamant it would not impose any new austerity measures, after cuts made in previous years put the country through years of recession and caused mass unemployment and poverty.

His concessions to creditors have mainly consisted of tax increases, mainly on businesses. Creditors worried that, while such taxes might spare the poor in the short-term, it would hurt the overall economy too much.