Eurozone Ministers Face Shock Greece Referendum Call

Eurozone ministers meet in Brussels on Saturday for a crunch meeting after a shock call for a referendum by Greek Prime Minister Alexis Tsipras threw a push to avert a default by Athens into confusion.

Greece will vote on July 5 on the outcome of negotiations with its international creditors that have dragged on since January, when Tsipras's Syriza party first took power on a promise of ending austerity.

The gambit by Tsipras heightened anxiety over a possible Greek default next Tuesday that could potentially push Greece towards an exit of the eurozone and risk throwing the European Union project as a whole into crisis.

"The people must decide free of any blackmail... the referendum will take place on July 5," the 40-year-old prime minister said in a televised address to the nation late on Friday.

But the vote is five days after a June 30 deadline for Greece to pay the IMF 1.5 billion euros, a debt officials in Athens say they cannot afford without a deal for bailout cash with its EU creditors.

The referendum call stunned Greece, with reports of Greeks reportedly rushing to withdraw money in fear of capital controls and more financial chaos after six years of debt crisis -- five of those in recession.

In an early reaction, Germany' vice chancellor Sigmar Gabriel urged Greece's European partners to remain open to the referendum.

"I think we would be well advised not to reject Mr. Tsipras's proposal out of hand," the center-left Gabriel told Deutschlandfunk radio.

"If it is clear that the vote is about a negotiated settlement, it makes some sense," said Gabriel, who is number two to the hardline German Chancellor Angela Merkel.

An EU official added:: The referendum has a certain "logic".

Greece's international creditors on Friday offered Athens a five-month, 12-billion-euro ($13.4-billion) extension of its bailout program but said it must seal a reform deal this weekend to avoid the IMF default.

Merkel had urged Athens not to waste an "extraordinarily generous" offer that would see Greece handed vital cash until November 30 in exchange for major reforms Greece has so far resisted.

But Greece did reject the offer, arguing it was unacceptable.

"We were asked to implement austerity measures... allowing the deregulation of the labor market, pension cuts, and an increase in VAT on food products, targeting the humiliation of an entire people," Tsipras said in his address.

With the referendum call, the agenda for the meeting of the 19-finance ministers is unclear.

A senior EU official had said before the referendum announcement that "either the Greeks are ready to discuss the latest proposals or the finance ministers will have to discuss plan B," referring to more drastic options that could include an exit from the euro.

Questioned if eurozone ministers would discuss the current proposal, another official replied: "That we will see. A number of countries want to debate plan B."

Greek authorities said that Tsipras had sent two of his closest aides to a key meeting with ECB head Mario Draghi, who for now is keeping the Greek banking system alive with vital cash.

Even before his government rejected the proposal, Tsipras said he would refuse any take-it-or-leave-it offers, after a two-day EU leaders' summit dominated by the crisis.

The call for a referendum was a dramatic twist to a week-long series of talks to end the stand-off between the creditors and Tsipras's leftist government, which has baulked at further reforms in exchange for cash.

Tsipras told Merkel and French President Francois Hollande on Friday that he could not understand the creditors' "harsh" stance and asked for leeway.

But the eurozone's two most powerful leaders insisted that it was "vital now to work towards a deal", a source said.

Under their proposal, an immediate 1.8-billion-euro disbursement -- profits from Greek bonds held by the European Central Bank -- would be paid as soon as the Greek parliament approved laws reflecting the deal.

Later payments, including money to cover huge payments owed to the ECB this summer, would come from the EU's firefighting rescue fund, the European Stability Mechanism, as well as cash currently dedicated to support Greece's banks.

Greece also wants debt written off as part of a solution to ending its current bailout, which expires on June 30.