An EU flag waves above the ancient temple of Parthenon atop the Acropolis hill in Athens on Tuesday. Photo: AFP

Greece's fate is hanging in the balance. It is desperate for a third bailout to avoid bankruptcy and being forced out of the euro zone by the end of this week.

Greek Prime Minister Alexis Tsipras on Wednesday requested a new three-year rescue from the European Stability Mechanism (ESM), promising that his government will submit detailed reform plans to its creditors by midnight Thursday, a deadline set by European leaders.

All 28 European leaders will then discuss new proposals at a summit on Sunday and make a final decision. Athens will likely exit the 19-nation euro currency bloc if no agreement could be reached.

The ultimatum came at an emergency summit in Brussels on Tuesday. Representatives of the 19-country eurozone gathered in response of Greek referendum on July 5.

A majority of the Greek people joined Tsipras to vote "no" in the belief that it would give him leverage to strike a better deal with creditors.

However, the "no" vote turned away the few remaining sympathizers in Europe. According to polls, more than half of Germans are fed up with helping Greece. Others cast weary eyes on Greece as it rejected the bail-out and set the conditions even as it is supported by Eurozone taxpayers.

Greece's "troika" of creditors, the European Commission, IMF and the ECB, wants Athens to meet its debt obligations, including raising taxes and cutting welfare spending. However, Alexis Tsipras says Greece has been treated like an "austerity laboratory," facing the toughest measures in the region.

Greece is squeezed between a heavy debt burden (177 percent of GDP), and a deep depression. The unemployment rate was 26.5 percent last year, the highest in Europe.

Lessened impact



Greece has entered uncharted waters following the expiration of the second bailout and the historic missing of the IMF payment on June 30. Greece is the first developed nation to default on an IMF payment.

"I am strongly against Grexit but I can't prevent it unless the Greek government do what they need to do," said Jean-Claude Juncker, the European Commission president. This is the strongest statement by the EU leaders since far-left Greek Syriza party took office about six months ago.

Mark Boleat, policy chairman at the City of London Corporation, told the Global Times, "We've already seen the impacts. It's not massive and it was not unexpected."

If Greece does leave, the euro is likely to be a lot less damaged now than it would have been two or three years ago. The banks over the past few years either pulled out or greatly reduced their exposures.

"But it's a big issue for Europe, that's why it has taken up a huge amount of top people's time, even though Greece's economy is tiny," Boleat added.

The referendum's result adds another layer of uncertainty to a very uncertain situation. The "no" vote also sent shockwaves to markets outside Greece, in particular in vulnerable countries such as Portugal, Spain and Italy.

The euro was deliberately constructed so that nobody could leave it. "We really don't know the impact. This is not being done before," Boleat said, adding that there is an agreement that Greece should never have been in the euro in the first place, and perhaps even a consensus that it should have left two or three years ago.

The EU is urgently preparing a Plan B for a Greek default scenario.

The only hope



Banks are closed, cash withdrawals are controlled, and the economy is in free-fall. Greece is sliding on the road toward bankruptcy, and will need to print a "new" currency such as the drachma after leaving the euro zone.

Greek banks currently are depending on emergency liquidity assistance from the European Central Bank (ECB). That fund allows the banks' ATMs to disburse up to 60 euros per day per client.

Senior economist Diego Iscaro of IHS Global Insight said, "Should the ECB stop providing liquidity, the Greek banking sector would collapse and the government might not have many options other than to start issuing a currency parallel to the euro. From there, a eurozone exit would be extremely difficult to avoid."

The risk of the ECB cutting liquidity to Greek banks is still there, although support for the banking sector could continue as long as Greece does not default on the central bank on July 20.

"The only hope of a deal may rest on the IMF convincing eurozone governments to include a clause promising debt relief in the future, conditional to Greece meeting certain targets," Iscaro said, adding that it would be extremely difficult but lenders might come to the conclusion that it is the only way to avoid Greece leaving the eurozone.

US Treasury Secretary Jack Lew and IMF chief Christine Lagarde on Wednesday called for compromise from European leaders to avoid a Grexit. Both of them suggested that Greece needs far-reaching internal reforms and a "debt restructuring."

The White House is also concerned about geopolitical and financial dangers. White House spokesman Josh Earnest said on Monday it is in the best interest of Europe and the US for the Greek debt crisis to be resolved, Reuters reported.

Negotiations will resume but the probability of a deal is up in the air. So far,  Tsipras has only delivered an outline of the reforms, which needs backing up with a detailed plan to meet creditors' expectations. 

German Chancellor Angela Merkel has said she would ask parliament in Berlin to authorize the opening of loan negotiations if the Greek measures are deemed satisfactory.