Greek default nears as euro zone ministers reject bailout extension

Euro zone finance ministers have rejected Greece's request for a five - month extension to its bailout, sparking fears that Greece may default as early as Tuesday.

Speaking after a meeting of euro zone finance ministers finished this evening, Minister for Finance Michael Noonan said that Greece could impose a bank holiday on Monday. “There are options,” he said, when asked about the ECB funding for Greek banks.

The European Central Bank’s governing council is due to discuss the deepening crisis tomorrow amid increasing fears about the state of the Greek banking sector.

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Greece’s prime minister Alexis Tsipras attends an emergency Parliament session for the government’s proposed referendum in Athens. Photograph: Milos Bicanski/Getty Images

Greek finance minister Yanis Varoufakis left the meeting mid-way through today’s eurogroup, with the other 18 finance ministers resuming discussions. Speaking this evening, Jeroen Dijsselbloem, the head of the eurogroup, said ministers intended to make “full use of the instruments available” to safeguard the resilience of the euro, and to complement any actions the ECB might take. He hinted that the euro area was much better placed to deal with a Greek exit than before.

“We are in a much better shape than we were some years ago. Programme countries are in a much better shape and [there is]much more stability than years ago. We have many more instruments than we had and our institutions are and will be prepared to take any action if needed. “

He said that the “door is open” to Greece for further talks, and pointed to tonight’s vote in the Greek parliament on the decision to hold a referendum on the creditors’ proposal for a bailout as an important moment. The Parliament, he noted, still has to take “a wide decision, and I hope that may lead to a different political situation”.

The Greek parliament is due to vote at midnight on the proposal by Greek prime minister Alexis Tsipras to hold a referendum on Sunday.

German finance minister Wolfgang Schauble stressed that the decision not to extend the programme did not automatically mean that Greece was leaving the euro. “We decided today that we will not extend the second programme. We did not decide to end the euro zone membership of Greece,” adding that the eurogroup would do everything to help Greece in this “difficult situation”. However, he also said that the institutions would “do everything to fight any possible contagion”.

Earlier Mr Varoufakis said the decision by the eurogroup not to extend the current bailout past Tuesday night had severely damaged the credibility of the euro. "It's a bad day for Europe, " he said.

Many among the 19 euro zone ministers said that they were surprised and disappointed by the announcement of prime minister Alexis Tsipras to seek a referendum on the proposal for a bailout.

Germany’s vice chancellor said a Greek referendum on the bailout talks could in principle make sense, but that it should be clear to voters what they will be deciding on. Sigmar Gabriel said: “There must be a clear programme. And what he (Tsipras) would like – for Europe to send €20 or €30 billion in aid programmes to Greece, but without any conditions – Europe cannot accept.”

As he arrived, Mr Noonan said he was “disappointed” at the decision of Greece to stop negotiations with creditors, warning that “we are now entering uncharted waters”.

Mr Tsipras announced last night a referendum would take place on Sunday, July 5th, on the controversial bailout deal, which he described as a “humiliation”.

He said the proposal would violate European rules and the rights to equality, work and dignity. He urged Greeks not to accept “an austere and humiliating austerity programme which has no end and no prospect of getting back on our feet”.

Mr Tsipras made little headway on the Greek bailout discussions at this week’s EU summit, with leaders insisting negotiations continue to take place at a technical level.

Mr Noonan said two proposals were being considered on Thursday, one from the institutions and one from Greece. He said the purpose of today’s meeting was supposed to be to continue bridging the gap between the proposals.

“Then I found at 12 o’clock last night that the Greeks had unilaterally discontinued negotiations. I’m disappointed,” he said. “I think the Greek people need a solution and I thought there was a basis for a solution in the two papers and in the merging of the two papers.”

Greek deputies were due to vote at midnight on the planned referendum. As the debate opened in parliament, Greek interior minister Nikos Voutsis confirmed that Syriza would call for a No vote.

There were reports of queues at cash machines in Athens following last night’s surprise announcement which was delivered in a live televised address.