As the enormity of what lies ahead began to dawn on 29 June, an equally unprecedented war of words broke out between the European Union and the Greek government, with EU leaders rounding on Greece’s Prime Minister, Alexis Tsipras.
They effectively branded him a reckless and feckless liar over his sudden announcement of a referendum on 5 June over the terms of an EU bailout that may no longer even be on offer.
The European Commission’s President, Jean-Claude Juncker, led the charge, accusing Mr Tsipras of betrayal and egotism. He was followed by the German Chancellor Angela Merkel, who said the 18 other members of the eurozone had already made “generous” concessions to Greece, and could make no further compromises.
The question for Sunday’s referendum will refer to the latest bailout proposals by Greece’s creditors – the European Commission, the European Central Bank and the International Monetary Fund. Mr Tsipras tweeted that a “No” vote would strengthen his negotiating hand, but Mr Juncker attempted to frame the question as one about Europe itself as he appealed for Greeks to cast a “Yes” vote.
Although Mr Juncker condemned Mr Tsipras, he offered consoling words for the Greek people, who, he suggested, had been misled. “Greece is a member of the European family and I want this family to stand together.”
Just weeks ago, the IMF Fund refused to accept the idea that Athens, which has received some 32 billion euros from the IMF to rescue its economy since 2010, would be unable to make the 1.5-billion-euro ($1.7 billion) payment.
At the beginning of June, Managing Director Christine Lagarde insisted she had the assurance of Greek leader Alexis Tsipras.
“The prime minister said ‘do not worry,'” she said confidently. A Fund spokesman reiterated that confidence again last week.
But Tsipras’s announcement of a referendum on an adjusted bailout plan which he urged his people to reject, made clear that the country is not going to reach a deal with official creditors in time to finance any new debt payment.
How “is it possible the creditors are waiting for the IMF payment while our banks are being suffocated?” Tsipras asked.
Greece will be the first country to default on the IMF since Zimbabwe in 2001, and in terms of standards of living, the wealthiest.
The IMF will undoubtedly wait to the final minute before declaring Athens “in arrears,” but then the country will be immediately cut off from further IMF aid, including disbursements planned on the existing bailout program.
The IMF has less at stake than Greece in that event, but still stands to lose, experts said.
“A default by Greece, even if a short-lived one, would stain the reputation of the IMF and make it less likely future IMF programs would trigger private (capital) inflows into troubled countries,” said a former Fund official.
It is not the first time that the IMF, traditionally called on by economically troubled governments to help when they run short of liquidity, faces the breakdown of a bailout program.
And it has already confessed errors in prescribing austerity as a cure when that ended up stifling economic growth.
The institution has been criticized from outside as well as inside. Some member states have objected to the way rules have been bent to keep supporting Greece.
They note that the Fund can only lend to a country if its debts are judged sustainable, and Greece’s clearly are not. A default by Athens will only aggravate that open wound.
Non-payment would signal in a way that is clear to the person in the street worldwide that IMF engagement with the euro and Greece has gone very badly wrong. What happens with Greece could also impact the IMF’s likewise high-risk loan program for Ukraine.
In March, Kiev obtained a new lifeline from the IMF amid huge questions over whether its debt load is sustainable.
The fund has more to guard than its image: it needs to protect the hundreds of billions of dollars provided it by its 188 members.
It has been able to, without much controversy, write off loans made to certain countries, mainly those in the most dire circumstances.
That includes Haiti, whose $268 million in debt was forgiven after the devastating 2010 earthquake, and $100 million written off for the West African countries hardest hit by Ebola last year.
But the Greek case is different. The size of the loans is many times larger and the losses would impact the IMF’s financial integrity.
The Fund needs Greece to keep going and eventually pay up, but “has few cards left to play,” Prasad said.
“It’s in no one’s interest to escalate the implications of this missed payment,” said Domenico Lombardi, a former board member of the IMF.
“They’re going to play that down in the hope that this is not going to jeopardize the start of future negotiations.”
Lagarde clearly understands that.
Greek PM Alexis Tsipras has urged voters to reject creditors’ demands in a snap referendum on Greece’s debt crisis due on Sunday.
Mr Tsipras said a clear vote against austerity would help Greece negotiate a better settlement to the crisis. Otherwise, he warned, he would not stay in office to oversee more cuts.