Greece defaults on IMF loan despite last-ditch financial rescue plan

The confidence and daring of Greek Prime Minister Alexis Tsipras appeared to crack late Tuesday when he pitched a new rescue plan to his country's creditors – only hours before Greece's current bailout plan expired and it became the first developed country to default on an International Monetary Fund loan.

The surprise bid to keep Greece's lifelines from the European Union open came as Greek banks remained closed for the second day, with ATM withdrawals limited to €60 ($84). Thousands of Greeks swarmed into Syntagma Square in central Athens to rally in favour of the creditors' last bailout plan in Sunday's national referendum. Mr. Tsipras's radical left, anti-austerity party has urged Greeks to reject it.

The Prime Minister's last-minute gamble to keep Greece's current financial lifeline intact for another two years, take the IMF out of the picture and couple it with a plan to reduce Greece's crushing debt, which has reached 180 per cent of the country's annual economic output, the highest in the Western world, appeared to fail.

German politicians said the Greek request would be dealt with "through normal procedures," a strong signal that there would be no quick effort to examine it. German Chancellor Angela Merkel, who has the power to make or break any new Greek bailout, said she will wait for the referendum before reopening talks with the Greek government.

In a note published late Tuesday, Megan Greene, chief economist for Canada's Manulife and U.S. subsidiary John Hancock Asset Management, said: "There is no way Germany will even consider this offer if the IMF is not involved. Germany has been reliant on the IMF from the very start for political cover. The Bundestag [German parliament] won't even sneeze without IMF approval."

The expiry of the current bailout program and the European Central Bank's refusal on Sunday to increase the level of emergency funding to Greece's banks, the victims of a nearly fatal deposit run, leave Greece essentially broke and on the verge of economic chaos. With the banks not scheduled to reopen until after the referendum, and possibly remain closed for some time after that, Greek businesses and retailers have come under enormous pressure as customers hoard cash. Some restaurants in Athens said their sales have dropped by half or more since the weekend.

Ms. Merkel made it clear that time had run out for Greece and that the cash-starved country was on its own, even if the creditors were willing to consider new proposals at some point. "This evening at exactly midnight Central European Time, the program expires," she said at a Tuesday news conference, referring to Greece's current – and second – bailout since the country found itself shut out of the debt markets in early 2010. "And I am not aware of any real indication of anything else."

A No vote on Sunday might doom the revival of bailout talks, at least in the near term. But a Yes vote would signal that most Greeks want a new bailout as the price to pay to stay in the euro zone and the wider European Union – even if it comes with harsh austerity measures such as tax hikes and pension cuts.

Late on Tuesday, in yet another surprise development in a bewildering day of dispatches, Yannis Dragasakis, the deputy prime minister, went on TV to say that the referendum may not happen after all. But the president of the Greek parliament, Zoe Konstantopoulou, said earlier in the day that there is no backing off now. "From the moment it was decided, there is no constitutional procedure to cancel the referendum," she said.

The Yes rally in Syntagma Square came a day after a No rally. The Yes rally seemed larger, in spite of the rain which one Yes supporter, Marian Fronista, joked was "sent on the orders of Germany."

Various estimates said 10,000 people attended the rally, making one of the largest in the last couple of years, but nowhere as big as the monster – and often violent – demonstrations that paralyzed Athens in 2011 and 2012, at the height of the debt crisis. The rallies on Monday and Tuesday were peaceful.

Achilleas Kasimidis, 29, a salesman for a Greek technology startup company, said: "We want to vote Yes to have a stable environment and remain part of Europe. A No vote will mean Grexit [Greek exit from the euro]."

Several rally members said they thought Mr. Tsipras's pitch for a new bailout on Tuesday was a cynical political move designed to convince Greek voters that the creditors are inflexible and bent on crushing the Greek economy with endless austerity. "He did it purely for domestic consumption," Mr. Kasimidis said.

While a few recent polls said the Yes vote was likely to win, there was a sense that the vote could go either way. Ms. Fronista, who is a civil law attorney, said the unemployed and the poor – two categories in ample supply in Greece – would likely vote No. "These people have nothing to lose so why wouldn't they vote No?" she said.