EU bailout funding decision moves Greece closer to Euro exit

States move to insulate themselves from fallout of possible 'Grexit' as Greece's parliament backs referendum on austerity measures.

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The Independent Online

Greece's European partners are preparing for the fallout from Greece's likely default and possible exit from the Euro after creditors refused to extend bailout funding in the days up to the country's planned referendum on austerity measures.

Eurogroup chairman Jeroen Dijsselbloem had expressed hopes the Greek parliament would vote against Prime Minister Alexis Tsipras's referendum, but those hopes were dashed when it voted in favour of the plan in the early hours of Sunday.

Eurozone finance ministers earlier refused to extend the bailout up to the Greek referendum, which is set for 5 July.

Following a meeting on Sunday, the European Central Bank (ECB) said it would continue to supply emerging funding to Greece at the current level. The decision does not provide further credit to Greece.

Earlier the BBC had reported an ECB source as saying the bank would end emergency lending, although not all observers had supported that.

Without the bailout extension Greece looks set to default on a €1.6bn (£1.1bn) debt to the International Monetary Fund (IMF) that falls due on Tuesday.

A default will push Greece closer to exiting the Euro.

In an interview on BBC radio Yanis Varoufakis, the Greek finance minister, refused to answer the question of whether his country would make the IMF payment.

"We are owed money by one part of the troika and we owe money to another part of the troika," he said, using the term that refers to the EU, ECB and the IMF.

"Why don't they sort themselves out and transfer money from one pocket ... to the other?"

Eurozone finance ministers insisted that Greece would remain in the Euro, with Eurogroup Chairman Dijsselbloem saying the process "has not ended" and that the group would continue to work with Greece.

"Many things could happen, many scenarios are conceivable," he said.

In an interview carried on Europe 1, Le Monde and iTELE, French Prime Minister Manuel Valls said: "A deal is still possible, I invite the Greek government to come back to the negotiation table."

Even so, the Eurozone finance ministers met without their Greek counterpart on Saturday to discuss how to limit the fallout from the Greek decision.

"We must do everything we can to fight any conceivable threat of contagion," Wolfgang Schaeuble, the German finance minister.

"You have to count on Greece getting into acute problems in the coming days because of this decision."

In the UK George Osborne, the chancellor, was briefed on the situation.

A Treasury spokesman said: "We have taken measures to increase our economic security so we can deal with risks like this from abroad, and we continue to take steps to prepare and protect ourselves from all eventualities".

Greek voters, struggling under stringent austerity measures, are unlikely to back the bailout terms (Getty)

Eurozone finance ministers have expressed disappointment at the Greek decision to hold a referendum on the bailout terms.

Many had felt that, after five months of negotiations, a deal to roll over bailout funding had been close last week, but that Mr Tsipras's televised referendum announcement had brought that to an end.

Reuters quoted one EU official as saying that the Greeks had "messed up" by calling the referendum.

"We did everything possible. They chose to blow up when we were so close to settling this in a way that would allow them to sell it," the official was quoted as saying.

Hans Joerg Schelling, the Austrian finance minister, equated the Greek move to playing poker. "But in poker, you can always lose," he said.

In Greece there were queues at cash machines following the referendum announcement as Greeks sought to take their money out of banks, but many had been depleted.

Mr Tsipras believes Greek voters, already struggling under stringent austerity measures imposed by the country's creditors, will vote against the bailout terms.

(Additional reporting by agencies)