The chances of a Greek exit from the eurozone have risen but a compromise deal between Athens and its European partners is still likely. All eyes are now on the European Central Bank, which must decide today whether to extend Emergency Liquidity Assistance (ELA) funds to Greek banks to keep them in cash while the crisis unfolds.
The headline of Greek newspaper Eleftheros Typos said it all: Hard ultimatum from the EU, 96 hours until an agreement or an accident”.
It was referring to the deadline set by Dutch Finance Minister Jeroen Dijsselbloem, chairman of the group of eurozone finance ministers, for Athens to request an extension to its bailout or run out of assistance.
Talks in Brussels between Greece and the rest of Dijsselbloem’s Eurogroup collapsed on Monday when Athens rejected a proposal to request a six-month extension of its international bailout package as “unacceptable”.
This has raised the risk that Greece would leave the eurozone and raises the prospect that the new leftist government of Prime Minister Alexis Tsipras would eventually have to call a referendum on whether to accept a deal with strings or ditch the euro.
Greek newspapers put the blame for Monday’s impasse squarely on the Eurogroup, saying it had been a case of “nekranastasis”, a resurrection from the dead of a proposal that Greece had already rejected.
Tsipras’ government has said it will not accept anything that requires it to sign up to an extension of the current European Union/International Monetary Fund bailout because of the austerity strings that come with it.
Greek Finance Minister Yanis Varoufakis remains confident that a solution will be found, despite two rounds of failed negotiations. But he insists his government has been elected to “challenge the philosophy” of the bailout.
Prime Minister Tsipras, who came to power last month, has vowed  to put an end to the budget cuts, tax hikes and other painful measures that have so far been required in exchange for bailout aid.
There are concerns that the showdown over the bailout could lead to Greece going bankrupt and leaving the eurozone, a development that analysts fear would destabilise the entire currency bloc.
Greece has received a total of 240bn euros ($272bn) in rescue packages since 2010 to avoid bankruptcy.
A final tranche of 1.8bn euros is still available from the European part of the bailout, along with another 1.8bn euros or so from a separate central-bank programme involving the purchase of Greek bonds.
Tensions surrounding the bailout have rattled financial markets and spooked account holders in Greece, with billions of euros in deposits withdrawn from banks in recent weeks.
It is in the interest of the eurozone that a solution is found under which Greece remains in the group. Compromise is the key word in finding such a solution.