Tsipras calls shock referendum

The move will cause consternation among Greece’s creditors, with a number of national leaders having indicated at an EU summit that their patience was almost exhausted. The Greek parliament is set to debate on Saturday whether to hold the referendum.

Just hours earlier at the summit in Brussels, creditors offered a five-month extension to Greece's bailout programme. The proposal would release €15.5 billion of funding over the next five months, €1.8 billion of which would have been immediately available provided that the Greek parliament swiftly agreed on laws to carry out reforms to the country’s tax and pension regime.

Speaking in Brussels, German chancellor Angela Merkel urged the Greek leader to accept creditors’ “extraordinarily generous” proposals.

A “No” vote would almost certainly see the country default on its debts and could likely lead to Greece becoming the first country to leave the eurozone. A default could happen as early as 30 June when a €1.6 billion repayment to the IMF is due.

Speaking in a televised address, Tsipras accused Greece’s creditors of attempting to ‘humiliate’ the Greek people.

“These proposals, which clearly violate the European rules and the basic rights to work, equality and dignity show that the purpose of some of the partners and institutions was not a viable agreement for all parties, but possibly the humiliation of an entire people,” he said.

Tsipras’ left-wing Syriza movement was elected in January on a platform of ending the years of austerity believed by many to have plunged the country into six years of recession which saw the Greek economy contract by 25 percent.

The threat to hold a referendum has echoes of 2011 when the then prime minister George Papandreou announced plans to hold a plebiscite on Greece’s bailout terms, but was quickly forced to abandon the plan by EU leaders.

Earlier, Papandreou had indicated in a BBC interview that a referendum could be a solution to the political deadlock, although he added that it would be “a crime” not to reach a bailout deal.

Eurozone finance ministers are scheduled to convene at 2pm on Saturday. However, with Greece now almost certain to reject the offer, the meeting is now likely to focus on how a Greek default could be controlled, and on whether to impose capital controls on the country. Eyes will also be on European Central Bank boss Mario Draghi, who was informed by Tsipras of his intentions to hold a referendum.

The ECB has been steadily increasing the amount of emergency liquidity assistance (ELA) available to Greek banks, which have experienced an unprecedented level of capital flight in recent weeks. The ELA ceiling was increased to €89 billion this week as depositors withdrew more than €3.5 billion from Greek banks.

Greek media reported queues forming outside cash machines in the hours after the announcement, as savers sought to get their money out. Greek ministers maintained that banks would open as normal on Monday.