Greece is now officially in arrears after it failed to repay more than $2 billion to the International Money Fund.
It is the first developed country to do so, with Zimbabwe the last in 2001.
The country’s government tried and failed to secure and eleventh hour deal to extend its bailout program, which is contingent on its continued payments to the IMF.
“It would be crazy to extend the program,” said Dutch Finance Minister Jeroen Dijsselbloem, who heads the eurozone finance ministers’ body known as the eurogroup.
“So that cannot happen and will not happen.”
The brinkmanship that has characterised Greece’s bailout negotiations with its European creditors and the IMF rose several notches over the weekend, when Prime Minister Alexis Tsipras announced he would put a deal proposal by creditors to a referendum on Sunday and urged a “No” vote.
The move increased fears the country could soon fall out of the euro currency bloc and Greeks rushed to pull money out of ATMs, leading the government to shut its banks on Monday and impose restrictions on banking transactions for at least a week.
Greeks are now limited to ATM withdrawals of 60 euros a day and cannot send money abroad or make international payments without special permission.
But in a surprise move late on Tuesday, Deputy Prime Minister Yannis Dragasakis hinted that the government might be open to calling off the popular vote, saying it was a political decision.
The government decided on the referendum, he said on state television, “and it can make a decision on something else”. It was unclear, however, how that would be possible as Parliament has already voted for it to go ahead.
With its economy teetering on the brink, Greece suffered its second sovereign downgrade in as many days when the Fitch ratings agency lowered it further into junk status, to just one notch above the level where it considers default inevitable.
The agency said the breakdown of negotiations “has significantly increased the risk that Greece will not be able to honour its debt obligations in the coming months, including bonds held by the private sector”.
Greek banks remain closed until July 6.
-with AAP, ABC