Embattled Greek Prime Minister Alexis Tsiparas is expected to offer to leaders of 16 countries that use the euro a new agreement in a Tuesday evening summit in Brussels.
If the leaders agree to a deal, the European Central Bank (ECB) could maintain a special lifeline it had previously given to Athens's financially hemorrhaging banks. However, failure to reconcile the difference between the ECB and Greek leader could lead the regional bank to declare that Greek banks are insolvent, reports LA Times.
In such a grim scenario, emergency aid would be cut and Greek lenders risk collapsing within days, or even hours. Other grave consequences of such actions is that residents would not be able to access their bank accounts, trade would halt and Athens would move closer to exiting its use of the euro.
As Greece's economic situation worsened, depositors withdrew their savings from local banks that the ECB had to lend the country $98 billion in recent months to avert a bank run. However, the ECB last week refused to provide more loans to Greek banks which continue to hemorrhage from withdrawals the past weeks as residents either deposited their euro in foreign banks or kept it at home.
This has resulted in funds of Greek banks down to $50 per capita or about $555 million. Bank depositors are now limited to daily withdrawals of $66 when the banks, after a weeklong holiday, reopen on Tuesday. The daily cap, which remains until Wednesday, is expected to result in long lines at ATMs.
In a referendum on Sunday, Greek voters heeded Tsiparas's call to reject bailout proposals from the country's creditors because belt-tightening measures were too harsh. German, Finnish and Dutch officials blamed the referendum results for setting back Athens's relations with the Eurozone. However, French, Spanish and Italian officials favored resuming talks with Tsiparas.
The New York Times points out that this growing rift among EU leaders is a threat that could complicate new negotiations. Default would cause Athens to issue a parallel currency or IOUs to pay domestic bills, paving the way for Greece's euro exit.
In a report released last week, the International Monetary Fund estimates that Greece would need to borrow $55 billion and receive massive debt relief "to survive through 2018."