Update: Greece's Tsipras calls July 5 referendum on bailout demands

[ATHENS] Greek Prime Minister Alexis Tsipras called a referendum on whether he should accept the latest demands of the country's creditors, the most dramatic move yet in a debt crisis that started five years ago.

Greek ministers, including the defense chief, joined the fray, urging the country of 11 million people to vote "no." In a nationally televised address after midnight in Athens, Mr Tsipras announced the July 5 vote and excoriated a take it-or- leave it offer as a violation of European Union rules and "common decency." Deputy Deputy Foreign Minister Euclid Tsakalotos said the government has no plans to impose capital controls and banks will stay open on Monday.

"After five months of tough negotiations, our partners unfortunately resorted to a proposal-ultimatum to the Greek people," Mr Tsipras said. "I call on the Greek people to rule on the blackmailing ultimatum asking us to accept a strict and humiliating austerity without end and without prospect." Since coming to power, Mr Tsipras has refused to bend to the creditors' terms accusing them of prolonging a punishing austerity. While his brinkmanship has taken his country to the edge of capital controls and a potential exit from the euro, the vote also has the potential to settle once and for all the question of whether voters want to stay in the currency area.

Referendums are a rare occurence in Greece. In 1974, as the country was emerging from a military dictatorship, Greeks voted against a monarchy and became a republic.

A 'no' vote could ultimately draw the curtain on Greece's membership of the euro. Faced by a rejection of its demands and those of other creditors, the European Central Bank could feel obliged to cut off the emergency funds that the country's banks rely on for survival. On the other hand, a 'yes' vote would spell defeat for Mr Tsipras and may force him into early elections.

"The probability of Greece leaving the euro, sadly, has only increased with this decision," said Nicholas Economides, Professor at the Stern School of Business at New York University, in a phone interview.

The majority of Greeks would prefer to stay in the euro even with a "bad" deal with the creditors attached to more austerity measures, according to a poll posted by Greece's Mega TV on June 16. The poll found that 56.2 percent of respondents were in favor of staying in the euro compared with 35.4 percent who said they would prefer default and exit from the single currency instead of a bad agreement.

The surprise development throws into turmoil planned talks Saturday among euro-area finance ministers on their latest proposal, which would unlock 15.5 billion euros (S$23.3 billion) and extend Greece's programme through November, in return for a commitment to pension cuts and higher taxes that Mr Tsipras opposes.

Greeece's Deputy Prime Minister Yannis Dragasakis and Tsakalotos will meet Saturday with ECB President Mario Draghi, a government statement said. Tsipras spoke with Draghi on the phone before announcing his decision to hold a referendum to explain the government's view, Tsakalotos said in a phone interview.

Since the address came late in Athens, most Greeks appeared not to have heard about the decision to put the creditors' proposals directly to them. In interviews, people turned to their cell phones to read the news, or flicked on their radios in cars to hear for themselves.

"It's a very brave decision," said Mr Yannis, who runs a small trinket shop across from the Greek Parliament, and declined to give his last name. "The European Union are dictators - they are bank dictators, and now we get a chance to tell them what we think." Europe broke with the ideology that the euro is forever in November 2011, when German Chancellor Angela Merkel and then- French President Nicolas Sarkozy threatened to kick Greece out unless it continued with the public spending cuts required in exchange for aid.

Greece backed down, power shifted from a left-of-center establishment party to a right-of-center one. The financial drip continued until Greece's economic suffering brought Mr Tsipras's radical-left Syriza party to power.

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