Greece default nears as Athens makes last gasp bid for deal

(ATHENS) - Greece requested a two-year rescue deal with the EU in a race down to the wire before its current bailout expires Tuesday, after admitting it would fail to make an IMF payment.

The eleventh-hour appeal came amid a flurry of actions aimed at preventing a chaotic eurozone exit which could have untold repercussions on international markets and the European Union.

The Greek premier's office said Athens has requested an agreement with the European Stability Mechanism "to fully cover its financing needs and the simultaneous restructuring of debt".

The ESM, created in 2012, is designed as a means to handle financial crises in the eurozone and keep the single currency region stable.

The move prompted quick reaction from Eurogroup chief Jeroen Dijsselbloem who tweeted that the eurozone finance ministers would hold a conference call later Tuesday to discuss the Greek request.

Athens's proposal followed European Commission chief Jean-Claude Juncker's attempt to clinch a "last-minute" solution before the referendum.

Juncker told the Greek premier that a deal would involve accepting reform proposals that Greece's EU-IMF creditors made at the weekend and backing a 'Yes' vote in Sunday's plebiscite.

Prime Minister Alexis Tsipras has urged Greeks to vote 'No' and reject creditors' tough reform demands in a referendum on Sunday, but has also pleaded for an extension of the European part of its bailout which expires Tuesday to keep Athens afloat.

Chancellor Angela Merkel of Germany, Europe's paymaster, said she would not discuss any new Greek request until after Sunday's referendum.

"Before the referendum Germany can't negotiate a new request" for assistance, Merkel was quoted as saying by a lawmaker of her conservative Christian Democrats.

Europe's main stock markets ended the day firmly lower Tuesday with London's FTSE 100 index falling 1.50 percent, the DAX 30 in Frankfurt down 1.25 percent and the CAC 40 in Paris losing 1.63 percent.

The Athens market, like the country's banks, is closed this week.

On Wednesday, the ECB's governing council will meet and discuss the crisis in Greece.

It was the ECB's decision on Sunday to not increase emergency funding for Greek banks that pushed Athens to close lenders and impose capital controls.

The ECB will probably stick with its current stance on Greek banks but could take measures to ensure problems don't spread to other eurozone markets.

- 'Creating bad history' -

Whether an accord was in the offing or not, Greece said it would miss a 2200 GMT deadline to make a debt repayment of about 1.5 billion euros ($1.7 billion) to the International Monetary Fund.

It would then become the first country to default on the IMF since Zimbabwe in 2001, and the wealthiest, in terms of standards of living.

Negotiations fell apart after Tsipras called a shock referendum on Greece's creditors' latest proposals.

Tsipras sought to calm nerves on Monday by leaving the door open, saying the July 5 plebiscite on the creditors' cash-for-reform plans would leave Greece "better armed" in the fight for a debt deal.

EU leaders Merkel, France's Francois Hollande and Italy's Matteo Renzi have warned that the referendum would effectively be a vote on Greece's place in the eurozone.

Meanwhile world-renowned economists including US Nobel Prize winner Joseph Stiglitz and leading French economist Thomas Piketty have called on EU leaders to guard against "creating bad history" in their standoff with Greece.

In a letter published Tuesday in the Financial Times newspaper they called on creditors to give Greece "a fresh start, bearing in mind, first, that the contractionary austerity policy demanded of Greece has been discredited by the IMF's own research department."

- 'Ready to help' -

In Greece, many people have been caught up in lengthy queues at ATMs after banks were shut down for one week, to withdraw the maximum daily allowance of 60 euros ($66). Tourists are however allowed unlimited withdrawals.

"We brought quite a lot of cash with us, but we've been budgeting to make sure it doesn't run out," said Michele Ammann, 48, from Switzerland.

"I feel sorry for the Greeks, they've been asked to sacrifice everything, right down to their underpants."

Many Greeks backed the government's defiant stance against the country's creditors, who they blame for forcing Greece into years of painful recession by demanding swingeing austerity cuts.

Pro-Greece demos were set to take place this week in Berlin, Paris, Brussels, Rome and Amsterdam.

As the tussle over Greece's future intensified, sympathetic people have donated over 200,000 euros so far to an online crowdfunding project set up by a British shoe-shop employee to help meet the IMF repayment.

In more gloomy news for Athens, Standard & Poor's ratings agency downgraded Greece's credit assessment deeper into junk territory, saying the referendum brought it closer to default.

Fitch also cut its ratings on four major Greek banks to "restricted default".

Standard & Poor's followed in cutting its rating of the Greek banks to 'selective default' due to the limits on cash withdrawals and foreign transfers.

Greece has debt worth nearly 180 percent of its GDP after receiving two bailouts worth 240 billion euros since 2010. Unemployment has more than doubled since 2009 to 25.6 percent and pensions and benefits roughly halved between 2010 and 2014.

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