ATHENS (Bloomberg) - The battle lines over Greece's future hardened as the country prepares to leave the protection of Europe's bailout regime and its citizens grapple with a new reality of capital controls.
As 12,000 people gathered in the central Syntagma Square with banners that read "our lives do not belong to the creditors," Greek Prime Minister Alexis Tsipras told ERT TV that European leaders don't have the nerve to throw his country out of the euro. Meanwhile, a European central banker signaled a way still could be found to keep Greece in the currency bloc - if voters reject Tsipras's policies at a referendum on Sunday.
Tsipras and his adversaries from Brussels to Berlin are surveying a landscape transformed by his shock decision to hold a vote on July 5. Greece is on course to withhold a $1.5 billion euro (S$2.3 billion) payment to the International Monetary Fund due June 30, and starting at midnight that day the country's ravaged treasury no longer will be formally under the protection of European Union rescue programs.
Mr Tsipras's decision about the vote jolted the financial system so badly that Greece's 11 million citizens now are coping with a new reality of capital controls that have locked their savings inside the country's banks.
"The exit from the euro zone, which was a theoretical point, can unfortunately no longer be excluded," European Central Bank Executive Board member Benoit Coeure said in an interview with Les Echos published late on Monday.
It is up to Greek voters to change their fate, he said. By embracing the austerity they elected Mr Tsipras five months ago to fight, they can preserve their membership in the euro club.
"The question is political. The response to that question, it's the Greeks who have it," he said. "If the response is 'yes,' I have no doubt about the fact that the authorities of the euro zone will find the means, under one form or another, to honor their commitments."
A vote in favour, the likeliest outcome, would make the government's position untenable and usher in early elections and a new leadership more amenable to the demands of creditors, according to Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.
Mr Tsipras is counting on voters' anger and hurt to strengthen his hand. His calculation is that Greeks can vote "no" to the terms attached to aid and still not pay the price of being forced out the bloc.
"The referendum will give us a stronger negotiating position when the talks resume," he said in an ERT TV interview. "The higher the participation and numbers of people voting 'no,' the stronger our position will be."
With Greece in financial lockdown and banks closed, Mr Tsipras blamed everyone but his government for bringing the country to the brink of financial paralysis.
"The institutions were not interested in finding common ground but rather to impose extreme measures," he said.
On Monday, European equities sank, with the Stoxx Europe 600 Index down 2.7 per cent while bond yields jumped in Italy, Spain and Portugal. In Athens, the stock market was closed.
Limited to 60 euro (S$90.66) a day of withdrawals, Greeks will find it impossible to resume life as before. For the poorest, it will be a struggle to survive. A mere 12 hours after issuing the capital-controls decree, the government revoked a provision that exempted pension payments from the caps.
With panic setting in, the Finance Ministry had to go on the record Monday night to deny rumors that withdrawals soon will be cut to 20 euros a day.
"The Greek government's behavior has been beyond belief," German Finance Minister Wolfgang Schaeuble said in an ARD television interview. Even so, "it won't be able to destroy Europe."
Neither German Chancellor Angela Merkel nor French President Francois Hollande, the heads of the two biggest economies in the euro, have ceded an inch. European Commission head Jean-Claude Juncker said the "whole planet" would view a "no" vote as Greece turning its back on Europe.