Greece defaults

After five years of negotiations and arguments and chaos, the clock finally strikes midnight for Greece.

Greece’s five-year struggle to avoid default and preserve its membership in Europe’s single currency ended in shambles at the stroke of midnight, as the country missed a key payment to the International Monetary Fund.

The default caps months of harried talks with creditors to redefine the parameters of a rescue that Athens argued had placed unbearable strain on a populace in the throes of an economic depression.

The often vicious debate between the upstart leftist government in Athens and the EU establishment has resonated far beyond Greece, raising uncomfortable questions for the continent’s leadership over their commitment to Europe’s core principles of social cohesion and solidarity. Those debates are likely to intensify, as the EU confronts the UK’s desire to renegotiate the terms of its membership and struggles to find common ground on other fundamental questions from security to migration.

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Whoever is to blame for the collapse of the Greek talks — a creditor group that includes the IMF and other eurozone governments — or Greece itself, the default marks the undisputed failure of the country’s €245 billion rescue, the largest the world has ever seen.

Greece is now firmly on a path to leave the eurozone, and possibly the European Union. While markets have so far weathered the immediate fallout, a Greek exit from the euro would show that membership is not irreversible, a reality that will have long-term implications for the currency’s stability.

Among those tainted by the failure is Europe’s most powerful leader, Angela Merkel. The German chancellor was one of the rescue’s key architects and its collapse raises doubts about her legacy. More immediately, she will have to explain to German voters why the tens of billions of euros they pledged to the bailout have evaporated.

IMF Managing Director Christine Lagarde issued an official notice of default just after midnight in a notice to the fund’s executive board. IMF Director of Communications Gerry Rice said in a statement that the “IMF received a request today from the Greek authorities for an extension of Greece’s repayment obligation that fell due today, which will go to the IMF’s executive board in due course.”

For Greeks, the immediate impact of the default might be limited, but the near-term consequences will be profound. The government was forced over the weekend to curb access to bank deposits, pending a Sunday referendum that many see as a vote on trying to remain in the euro. There was some doubt late Tuesday over whether the referendum would even be held. The ostensible purpose was to endorse a deal no longer on the table and even members of Prime Minister Alexis Tsipras’ Syriza movement, including his deputy prime minister, questioned the point of holding the vote.

If it is held, a ‘no’ vote would all but bury Greeks hopes to remain in the currency because the rest of the eurozone would view it as a rejection of the principles that govern membership.

Even if Greeks vote ‘yes,’ the default could make it difficult for them to stay. In addition to the default, Greece also lost any hope of tapping further funds from its bailout at midnight. That means that the government will have to negotiate a new bailout in the coming weeks to pay off other debts coming due.

Without fresh aid and a stabilization of Greece’s banking system, the government will also have difficulty paying pensions and government salaries in the coming weeks. Without access to cash, it may have to resort to issuing IOUs or begin printing its own currency.

Unless Greece can secure new funds in the coming weeks, the ECB will have no choice but to cut off its liquidity support for the banks, which would trigger their collapse. The ECB has already limited its support for the banks, a decision that forced Athens to close banks until next week to forestall a run on deposits.

As Greece approached the point of no return on Tuesday, Europe’s leaders engaged in a flurry of last-minute diplomacy.

In one of the most dramatic days in Greece’s seemingly  endless struggle to overcome its debt crisis, leaders in Athens and Brussels retreated from the recriminations of recent days to exchange blueprints to break the impasse.

But in the end, their proposed remedies remained far apart, raising questions about whether the frantic wrangling was more about assigning blame for the failure than finding compromise.

The day started with a fresh proposal from European Commission President Jean-Claude Juncker, delivered to Athens late Monday.

The final-hour scramble put the chaos of Europe’s quixotic five-year rescue mission for Greece into sharp relief. After months of rollercoaster talks that failed to result in an agreement or a way forward, Juncker was attempting what he repeatedly said was impossible — to pull a rabbit out of a hat.

Juncker called Tsipras last Monday, saying that for a deal to happen before the deadline, the  Greek government would have to move to accept the Commission’s proposal by midnight Monday. “This move was never made,” Juncker’s spokesman said on Tuesday.

Greek leaders, hunkered in Tsipras’ office, responded Tuesday afternoon with a long-shot request of their own, demanding debt relief and a new, two-year loan program.

What Tsipras asked for would amount to a third bailout, giving it enough money to make debt repayments through 2017. It owes creditors about €30 billion during that period. The country has already received two bailouts totaling more than €240 billion.

But in Berlin, Europe’s key power center, Merkel and her coterie had already written Greece off. As far as Germany’s leaders were concerned, Greece had sealed its face in the early hours of Saturday by calling the referendum. If that weren’t bad enough, Tsipras also pledged to campaign against a deal.

German Finance Minister Wolfgang Schäuble, who for weeks had argued that the Greek government couldn’t be trusted, vented his anger over the referendum in a letter to parliament on Monday.

“The Greek government’s latest maneuver was obviously aimed at getting more time and, in that meantime, taking further financing without having to trade any reforms,” he wrote.

The eurozone’s “financial solidarity has enabled Greece to maintain levels of wealth and power that they haven’t earned to a certain extent,” Schäuble’s letter continued. “The current Greek government has sadly wasted its chance to use additional time…to develop alternative proposals to what was already arranged before.”

Merkel told members of her parliamentary group on Tuesday that she wouldn’t entertain any new offers from Greece until after the referendum.

She wasn’t alone.

After months of tumultuous negotiations, Greece’s eurozone partners had had enough. By the time eurozone finance ministers held a call at 7 p.m. Brussels time to discuss the offer, their decision was clear. A formal rejection of Tsipras’ last-ditch salvo was a formality.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of the eurozone’s finance ministers, offered a withering appraisal of Tsipras’ offer on CNN.

“The political circumstances and political stunts of the Greek government don’t seem to have changed,” he said. “The practical circumstance is that the old program expires” at midnight.

Zeke Turner contributed to this story.