Greek debt crisis: Eurozone hands Greece five-day deadline to save itself from bankruptcy

If Greece does not secure emergency funding in the next five days, Greek banks will collapse

Greek Prime Minister Alexis Tsipras, front left, at Tuesday’s emergency eurozone summit in Brussels (Reuters)

European lenders have given Greece one final ultimatum: find a deal by July 12 or go bust.

Alexis Tsipras promised a 'no' vote in the Sunday referendum, against the European lenders’ bailout terms, would give the Greek government a stronger platform on which to negotiate with the EU.

That now seems to have backfired.

"I am strongly against Grexit," said Jean-Claude Juncker, president of the European Commission, referring to Greece’s potential exit from the Eurozone. "But I can’t prevent it if the Greek government is not doing what we expected. We have a Grexit scenario prepared in detail: we have a scenario as far as humanitarian aid is concerned."

Merkel would not entertain the prospect of fudging emergency funding through the summer while longer term plans are formulated. She insisted Greece prepare a full set of reforms before the release of further funds. Merkel said that the decision to close the banks had worsened the situation in Greece.

"I have to see to what extent the government is ready and willing to close this gap . . . through structural measures," Merkel said. "This is certainly now a challenge of a different nature than it was 10 days ago because over the past few days the economic situation of Greece has not improved, not at all."

If Greece does not secure emergency funding in the next five days, Greek banks will collapse. Greece would be forced to reinstate a new currency, such as the drachma, to restart its economy. This is unprecedented in the EU and raises serious questions as to the longevity of the political initiative, which EU leaders are at pains to preserve.

Syriza has so far stood firm that the austerity policies favoured by the EU do not and will not work in Greece. Marina Prentoulis, Syriza’s UK spokeswoman, told the BBC: “This government want to find a solution. But to do that the opposition must recognize that austerity hasn't worked in Greece, it has raised the debt. For proposals to work we need to see investments. We have to deal with the debt.”

“The opposition must recognize that the austerity and neo-liberalism that they keep promoting throughout Europe has not working and it has failed miserably,” she added.