Eurozone Rejects Greek Bailout Extension

        BRUSSELS—The eurozone rejected a Greek request for a one-month extension to its bailout Saturday, plunging the country into a period of high uncertainty and raising concerns about wider fallout from the crisis when financial markets open on Monday.
        The currency union's authorities are ready to deal with possible contagion, Jeroen Dijsselbloem, who presides over meetings of eurozone finance ministers, said Saturday after talks here with the ministers of all 18 eurozone countries apart from Greece.
        Mr. Dijsselbloem, the Dutch finance minister, said the bloc would "make full use of all the instruments available to preserve the integrity and stability of the euro area."
        Other ministers said they would make sure that turmoil in Greece won't affect the stability of their own countries and try to help Greece hold on to their shared currency.
        "Greece is and stays a member of the eurozone," said German Finance Minister Wolfgang Scha uble. However, he declined to answer how the government could hold on to the euro given its lack of money and the growing deposit outflows from its banks.
        The decision to let the eurozone's portion of Greece's ˆ245 billion ($274 billion) bailout expire at the end of the month came after Athens announced it would hold a referendum on the aid program in which it would campaign against the policy overhauls and budget cuts demanded by its creditors.
        Cut loose from the rescue loans that have sustained it for the past five years, Greece is now set to default on its ˆ1.55 billion payment to the International Monetary Fund on Tuesday.
        More immediate financial turmoil could come from growing deposit withdrawals from Greek banks.
        Greek Finance Minister Yanis Varoufakis warned that his colleagues' decision to leave his country without support until the July 5 vote would cause "permanent damage to [their] credibility."
        "Europe can still ask Greek people to vote 'yes' to an improved proposal" for financial aid, said Mr. Varoufakis, who left the meeting after a first round of talks Saturday afternoon.
        Mr. Dijsselbloem, however, ruled out the possibility of a new proposal with easier terms. Even if the Greek people voted "yes" in the referendum, he said, there would be "grave problems of credibility" over the government's willingness and ability to implement the measures demanded by the creditors.
        "In the meantime, there are major problems already for Greece, and this is a big problem of risk management, I would say for the Greek government to think about," Mr. Dijsselbloem said.
        The biggest risk in the coming days could come from a run on Greece's banks, as depositors worried about the country's future in the eurozone withdraw their savings. In Athens, long lines were already forming in front of cash machines Saturday afternoon.
        Amid the reaction, many officials now expect Greece to introduce capital controls, possibly as soon as this weekend. "You've seen Cyprus," said one official, referring to another eurozone country that limited the withdrawal of cash and transfer on funds abroad in 2013 amid a big banking crisis.
        But compared with Cyprus, which implemented capital controls as part of a ˆ10 billion bailout package from the eurozone and the IMF, the financial situation of the Greek government is much more precarious.
        Much of what happens next depends on how the ECB reacts. Greek banks have been cushioning large deposit outflows in recent months with emergency loans from the Greek central bank. But those loans can be stopped by the ECB's governing council, which includes central bankers from other eurozone countries, if there is concern that Greek lenders are no longer solvent.
        European institutions, including the ECB and the European Commission, and many national governments have had blueprints for dealing with a messy Greek default and potential exit from the eurozone since at least 2012.
        Stephen Fidler and Nektaria Stamouli in Brussels contributed to this article.
        Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com and Viktoria Dendrinou at viktoria.dendrinou@wsj.com
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        (END) Dow Jones Newswires

        June 28, 2015 20:10 ET (00:10 GMT)

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