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ATHENS, Greece (AP) — Greece's fraught bailout talks with its creditors took a dramatic turn early Saturday, with the radical left government announcing a referendum in just over a week on the latest proposed deal — and urging voters to reject it.
Prime Minister Alexis Tsipras announced the July 5 referendum in a televised address to the nation, following an emergency meeting of his cabinet.
"The Greek government has been asked to accept a proposal that places new unbearable burdens on the Greek people," Tsipras said. "Right now, we bear an historic responsibility concerning ... the future of our country. And this responsibility obliges us to answer (the bailout creditors') ultimatum based on the sovereign will of the Greek people."
The move radically raises the stakes in Greece's confrontation with its increasingly irate creditors, whom Tsipras accused of seeking to "humiliate the country," demanding new pension cuts, sales tax hikes and labor market reforms.
Worried Greeks have been pulling their money out of banks for months, and an estimated 4 billion euro left Greek banks last week. Queues were seen forming outside several Athens cash machines and fuel stations late Friday and early Saturday.
Giorgos Pistevos, a retired bank employee, was in a queue withdrawing money at 3 am in the northern suburb Vrilissia, where many cash machines had 5 to 25 people waiting.
"I withdrew the (daily) limit, 700 euros, and then I went for a second try, but it won't give me any more," he told The Associated Press. "I'll try again tomorrow."
Pistevos said he went home after midnight and switched on the TV. "As soon as I saw (the news), I went straight to the bank because we don't know what will happen," he said.
Tsipras said he would ask creditors Saturday for an extension "of a few days" to Greece's bailout program, which expires on Tuesday. In theory, without an extension, the country will lose access to any remaining bailout funds.
The referendum announcement also raises severe questions over whether the debt-crippled country will be able to remain solvent and in the 19-state eurozone. Greece desperately needs a deal with its creditors. Without a 7.2 billion euro ($8.07 billion) bailout loan installment — which would only be available if there is a deal — the country will be unable to make a 1.55 billion euro payment to the International Monetary Fund on Tuesday, and even bigger payments later July.
A Greek official close to the bailout negotiations said the country was unlikely to pay the IMF on Tuesday, adding that IMF rules allow a certain period during which a country is considered to be in arrears.
By essentially defaulting on its debt mountain, Greece would likely see its banks collapse, as they depend on emergency European Central Bank funding. The government could soon run out of cash, face huge difficulties in paying pensions and civil servant salaries — and that could force it to leave the eurozone and adopt a weak national currency. But the country imports most key consumer goods, whose cost would rocket beyond most Greeks' reach under a new currency.
Teneo Intelligence analyst Wolfgango Piccoli said Tsipras' move places Greece in "entirely uncharted waters." In a note, he said it also raises the risk of the country leaving the euro to "at least 50 percent," more than double the previous level.
Greek opposition parties — except for the Nazi-inspired Golden Dawn — expressed horror at the referendum.
Conservative main opposition leader Antonis Samaras accused Tsipras' radical left government of advocating an exit from the eurozone and the European Union.
"Mr Tsipras has led the country to an absolute impasse," he said. "Between an unacceptable agreement and leaving Europe."
But government officials insisted that the referendum would not be about currency change.
"It's not a question of yes or no to the euro ... euro or drachma," Defense Minister Panos Kammenos told state ERT TV, referring to the old Greek currency. "There is no process for Greece to leave the euro," he added, referring to eurozone rules which contain no provision on a country being forced out of the currency club.
An emergency session of Parliament will be called at noon Saturday to ratify the decision. The government has enough lawmakers to carry the vote.
"The question will be acceptance or rejection of (the bailout creditors') proposal" for a new deal, Tsipras said. His government had already said it rejected the latest proposals from representatives of the European Commission, ECB and IMF.
Later on Saturday, finance ministers from the 19-member eurozone were expected to meet in Brussels for what had been billed as a last attempt to reach a mutually agreed deal. Athens said its senior bailout negotiators will meet Saturday with ECB head Mario Draghi.
Development Minister Panayiotis Lafazanis urged Greeks after the late-night cabinet meeting to vote against the creditors' proposal.
"The answer of the Greek people will be a resounding no," he told reporters. "All Greeks will vote no."
State Minister Nikos Pappas echoed the sentiment. "Our people will vote no, you will see," he said. "This is a very good night ... the Greek people will soon be able to decide" for themselves.
The surprise announcement follows days of frantic negotiations with the EC, ECB and IMF in Brussels. On Friday, officials in Brussels said Athens had agreed to key reforms that are close to what creditors have demanded.
The creditors in return offered Greece a five-month extension to its bailout program.
According to the text of the creditors' proposals seen by The Associated Press, Athens was offered an extension to its bailout program through November, with loans worth 15.5 billion euros. That includes the 7.2 billion euros from the existing rescue program and money left over from a bank rescue fund.
The European Central Bank has been supporting the Greek banks — and frequently increased that aid this week as they struggled to cope with the drain of deposits. But it would be under pressure to pull the plug on the banks if Greece's bailout program expired and there was no prospect of a financial rescue for the country.
Government officials early Saturday dismissed fears of a bank meltdown or imposition of capital controls.
It remains unclear whether the referendum would be legitimate, as Greece's constitution bans such votes on fiscal matters, and how the government would handle the result.
"It is at this point difficult to see how this situation could end well for Athens," Piccoli said. "Even if a majority were to back the proposal, the question is whether a government now openly opposed to the agreement would be able and willing to implement the attached reform conditions. Equally, if the "No" camp wins, it is entirely unclear at this point what the government's plan B would look like."
Greece has survived on bailouts, conditional on deep reforms and spending cuts, since it lost the confidence of money markets in 2010. But the austerity measures worsened a punishing recession, pushed unemployment well over 25 percent and cost the average Greek at least a third of their income.
Elected in January, Tsipras' government has long been adamant it would not impose any new austerity measures, after cuts made in previous years put the country through years of recession and caused mass unemployment and poverty.
His concessions to creditors have mainly consisted of tax increases, mainly on businesses. Creditors worried that, while such taxes might spare the poor in the short-term, it would hurt the overall economy too much.
Pistevos, at the northern Athens bank queue, said he expected the referendum to be "very divisive."
"I think the results will be unpredictable and in the end, the referendum will end up being a yes or no to Europe," he said. "The question isn't whether we stay in the euro. We're already out of that. We could end up out of Europe."
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Thanassis Stavrakis and Elena Becatoros in Athens contributed
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