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Greece crisis: The bailout, referendum and what happens next amid eurozone chaos

The Greek public go to the polls for a crucial referendum on Sunday having been warned that rejecting the proposal from the country's creditors could lead to it crashing out of the euro

Published 30/06/2015

An elderly man waits to receive his pension outside the National Bank of Greece headquarters in Athens (AP)
An elderly man waits to receive his pension outside the National Bank of Greece headquarters in Athens (AP)

We look at some of the key issues facing Greece ahead of Sunday's referendum.

Why is Greece teetering on the financial brink?

Heavily indebted Greece has long been receiving financial bailouts from international creditors. Now it risks being effectively declared in default if it fails to meet a debt repayment of 1.6 billion euro (£1.1 billion) to the International Monetary Fund (IMF).

The repayment depends on receipt of the latest tranche of a eurozone bailout fund, which is itself being made conditional on Athens accepting new austerity measures.

Why is there a referendum on Sunday?

Greek prime minister Alexis Tsipras, whose radical left-wing Syriza party was swept to power on a tide of anti-austerity feeling, called a snap referendum on the proposals from the creditors - the EU, ECB and IMF - which would impose further potentially painful economic reforms.

Mr Tsipras believes a clear vote against austerity would help Greece negotiate a better settlement to the crisis and has signalled he will resign if he loses the referendum.

But European Council president Donald Tusk warned Greeks that a No vote in the referendum would not give their leaders the leverage to get a better deal.

In an indication of how high the stakes are, European Commission president Jean-Claude Juncker suggested that a No vote would be seen by the rest of the world as a "signal that Greece wants to distance itself from the eurozone and from Europe" and accused the Syriza government of failing to "tell the truth" about the package on offer.

Prime Minister David Cameron has said the poll on Sunday will essentially amount to an "in/out" vote on Grexit - whether Greece should leave the eurozone.

If the Greeks reject the deal on Sunday, what happens next?

Unless there is a last minute compromise - a situation which can never be fully ruled out in European Union politics - Greece looks set to become the first country to leave the single currency zone.

Without a deal, Greece will almost certainly fail to make a 3.5 billion euro (£2.5 billion) repayment to the ECB on July 20, making it politically and economically very difficult for the Frankfurt-based bank to continue propping up the country's banking system.

Faced with bankruptcy, Athens would be forced into a potentially messy default which would see it forced to abandon the euro and potentially leave the EU altogether.

A Grexit from the single currency would be a major embarrassment for the eurozone, and could trigger contagion as speculators focus on other weak economies using the euro.

There would also be a chaotic period as Greece attempts to re-establish its own currency, potentially reviving the drachma.

If the reaction to the crisis went further and Greece left the EU, the symbolism of the country that gave birth to democracy leaving the union would not be lost on its critics.

It would also mark a major reversal in the programme of expansion which has seen the EU grow to encompass former Soviet bloc countries.

Could Greece turn to Russia for help?

The Kremlin has brushed off speculation that it could lend money to Greece, but Mr Tsipras has visited Russia twice since April fuelling the rumours that he could turn to Moscow for support.

Russian president Vladimir Putin has been at loggerheads with the EU over the Ukraine crisis and any deal with Greece could increase the tension.

Where does the crisis leave David Cameron's push for EU reform ahead of the UK's own referendum?

The Prime Minister is attempting to renegotiate the UK's relationship with Brussels ahead of an in/out referendum on membership of the EU by the end of 2017.

Some commentators have suggested that a Greek exit from the EU would strengthen his hand in the negotiations, because the club would not want to see two of its members leaving in quick succession.

But if Greece remains as a member of the EU, the scale of the crisis would require officials and politicians to devote huge amounts of time and effort to the problem - potentially making Mr Cameron's demands a sideshow, as he discovered at this month's European Council summit.

Online Editors

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