Greece cannot afford the $1.8 billion amount which has to be paid to the International Monetary Fund (IMF) on Tuesday, a Greek government official said on Monday, with lenders, the US State Department and Germany promoting Greece’s continuation within the eurozone.
The default may be temporary as Greek Prime Minister Alexis Tsipras on Sunday called his nation to vote in a referendum for bailout terms, offering proposals to reduce the pressure on bank balance sheets. Thus, each proposal comes with a cost.
Christine Lagarde, chief of the IMF, announced that if the referendum vote on Tuesday resulted in "a resounding yes" to endure within the eurozone and solve the problems of the Greek economy, then the creditors would be more assistive and lenient in sealing a deal
German chancellor, Angela Merkel has said negotiations may get back underway following the July 5 referendum.
“If Greek government asks for new negotiations after the referendum, for example, of course we will not refuse such talks,” the chancellor said following an emergency meeting with government officials and economic advisors.
The US State Department has released a statement on Monday, pushing for a deal to keep Greece within the eurozone and expressed their disagreement with options leading to Greece’s withdrawal from the common currency zone.
Obama called Merkel on Sunday to review the latest developments on Greece, after creditors refused to extend the deadline for repayment.
"The two leaders agreed that it was critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the Eurozone," said a statement from the White House.
Obama said he and his economic advisors will closely monitor the Greek crisis and its headway in the days to come. The leaders decided to stay in close communication till some progress is made.
Greek PM Tsipras has also said he believed that the international creditors have no intention of strengthening Greece’s prospects to leave the eurozone, which will result in a huge blow across the euro.
The Greek stock exchange and banks will remain shut down till next Monday, July 6 and ATM withdrawals will be limited to 60 euros a day, with an effort to bolster Greek credit controls after the international creditors refused to extend the country’s bail out, financial industries reported, said the Chief executive of Piraeus Bank. The decision came after a meeting of government and finance officials.
Greek Prime Minister Alexis Tsipras will address the Greek people on Tuesday evening and provide details of Greece’s economic future that also threatens the eurozone.
With funding from the European Central Bank (ECB) keeping the Greek banks afloat, a domino effect could follow an unfavourable change in Athens as it heads towards a default and possible exit from the eurozone.
The former ECB board member Lorenzo Bini Smaghi told the Italian daily Corriere della Sera on Sunday that the ECB will no longer be able to back Greek banks, as uncertainty looms the county.
"Given the uncertainty over Greece remaining in the euro the ECB will no longer be able to supply liquidity to the Greek banks, who in turn will be unable to supply euros to their clients," he said, according to the report.
He then continued to note the tragedy which the Greek citizens are likely to expect.
“They will rush to withdraw their money out of banks but will “probably not be able to do so," he said.
Greece’s funding options are close to hitting rock bottom while nervous savers continue to withdraw billions of euros out of the banks, as debt talks look likely to fail.
Every euro pulled out from an ATM is supported by emergency funding from the ECB. Without an extension to the bailout programme, these ECB emergency loans are at risk.