Europe's Race Against 'Grexit'

(RTTNews) - As the clock ticks on, the European Union and Athens are once again lining up last minute efforts to prevent Greece from going over the cliff into the unknown and etch a sorry chapter in the 16-year history of the euro.

The Greek government has submitted a request for a two-year bailout with the European Stability Mechanism (ESM) to fully cover its financing needs, along with debt restructuring, the state-backed ANA-MPA news agency reported citing a statement from the office of the Prime Minister Alexis Tsipras.

"From the first we made clear that the decision to call a referendum was not the end but the continuation of a negotiation seeking better terms for the Greek people," the report said.

This would imply the country is seeking a third rescue as its second bailout programme ends on Tuesday.

Eurogroup is set to hold an emergency conference call at 7 pm Brussels time.

Greece faces a crucial 1.6 billion euros payment to the International Monetary Fund, which must be made by 6 pm ET on Tuesday. Finance Minister Yanis Varoufakis has confirmed that the country would not make the payment.

Failing to pay the IMF will not lead to a default, as the lender would describe that Greece is in arrears. Rating agency Standard & Poor's downgraded Greece's rating to CCC- from CCC and said there was a 50 percent chance the country would leave the euro. Fitch downgraded Greek banks to 'Restricted Default'.

The European Central Bank is set to hold a Governing Council meeting on Wednesday to review the emergency funding assistance it provides to Greek banks. If the central bank decides to cut off the crucial lifeline, Greek banks could go belly up.

The lender had refused to raise the cap its emergency liquidity assistance on Sunday as the Eurogroup on Saturday rejected any bailout extension for Greece.

Greece has to pay EUR 3.46 billion to the ECB on July 20 for the bonds the lender holds. If the central bank decides to cut off the crucial lifeline, Greek banks could go belly up.

Bailout negotiations between Greece and its creditors broke down over the weekend after Tsipras called a July 5 referendum on the country's bailout on Friday.

Top EU officials were reportedly in contact with Tsipras, who was apparently reconsidering last Friday's proposal from creditors, which was made public by the European Commission on Sunday.

The ANA-MPA reported earlier that Tsipras had spoken on phone with European Commission Head Jean-Claude Juncker, European Central Bank Chief Mario Draghi and European Parliament President Martin Schulz.

The Greek daily Kathimerini reported earlier on Tuesday, citing sources, that Tsipras was reconsidering the creditors' offer as he came under pressure from some members of his government to accept the same amid the fast deteriorating economic situation caused by bank and stock market closures.

Reports also suggest that creditors demanded Tsipras to give his acceptance of the offer in writing and agree to call for a 'yes' vote in the July 5 referendum. Further, the letter must be addressed to Juncker, Eurogroup President Jeroen Dijssebloem, German Chancellor Angela Merkel and French President Francois Hollande.

The proposal included raising the VAT on hotels to 13 percent, rather than the 23 percent suggested earlier, and bigger cuts on defense spending.

Tsipras apparently had to respond in time to the offer for the EU call an emergency meeting of the euro area finance ministers on Tuesday.

The government is backing a 'no' vote, alleging that creditors' austerity demands were unrealistic. On Monday, Tsipras again asked Greeks to reject austerity and said a 'no' vote would force him to quit his post.

He has also said that Europe would prevent Greece from exiting the euro as the cost would be huge. Varoufakis have also said that Greece will not leave the euro.

Meanwhile, European leaders including German Chancellor Angela Merkel and French President Francois Hollande, have expressed hope that Greece remains in the euro zone and willingness to continue to talks if there was a 'yes' vote in the referendum.

However, they also warned that a 'no' vote in the referendum would mean Greeks are rejecting Europe and opting to exit the Eurozone, dubbed the 'Grexit'.

Disheartened Greeks have been queuing up in front of ATMs since the weekend in an attempt to extract their cash. The country has set a daily cash withdrawal limit of 60 euros and imposed capital controls at the start of the week.

Reports on Tuesday suggested that the government allowed some 1,000 bank branches to open to service pensioners who did not have debit cards.