ATHENS — Just hours before Greece could stumble into default, Greek Finance Minister Yanis Varoufakis said Tuesday that he believed creditors could still find a way to keep the country's financial lifeline open if they wanted.
"Europe has ways of extending deadlines," Varoufakis told The Washington Post.
But Varoufakis also looked ahead to the other possible outcome: A defiant Greece left without its rescue money and under pressure to leave the common euro currency. He said Greece could resort to legal force to try to keep his nation in the euro zone.
Amid a flurry of last-minute negotiations, he said Greece had not yet heard a proposal from European Union leaders that it found acceptable. But he believed there were options to negotiate beyond dual deadlines at 1 a.m. Wednesday in Athens (6 p.m. Tuesday EDT).
After that, Greece would become the first developed country to be in default to the International Monetary Fund unless it comes up with a payment of 1.6 billion euros ($ 1.9 billion). Greece also would lose its financial safety net from the European Union unless it agrees to bailout terms that include even deeper spending cuts.
[Grim prospects in Greece but modest fallout around the world]
"Europe and the IMF can carve out space and time when it is necessary and when they want to do it politically," said Varoufakis, looking relaxed in an open-necked blue-checked shirt and black dress pants in his office overlooking the Greek capital's central Syntagma Square — one of the main public forums for displays of anger and dismay over the slide toward effective bankruptcy.
He said he had no immediate plans to travel to Brussels, which would be one potential sign of an imminent deal.
His outward calm also reflects the deep gaps with Greece's European partners and international lenders. Even as Greece's leaders claim there is time to talk, those holding the crucial purse strings say little room is left before all plunge into uncharted territory.
The sense of urgency was underscored in Brussels, where European officials debated a last-ditch bailout offer seeking to persuade the country's leaders to step back from the path of fiscal default and a referendum that could decide the Greek future in the euro zone.
Greece's government, however, has insisted the latest terms of the bailout package are too painful after years of forced cutbacks and austerity that has gutted the economy and pushed Greek negotiators to walk away from talks last week.
["Emotional war"]
In a related move, Greece sought emergency two-year funding from the European Stability Mechanism, an E.U. group set up for crisis-level loans, said a government statement. It was unclear, however, whether the request could move forward amid the current impasse.
European officials and international lenders have so far stood firm. Greece's fiscal quagmire is widely viewed as a dilemma of its own making after decades of free-spending policies and resistance to belt-tightening that are no longer sustainable.
The brinksmanship deepened Tuesday as nervous global markets watched the crisis play out. Varoufakis, the finance minister, said Greece was prepared to miss the IMF payment.
The next step could be a Sunday referendum called to either accept or reject the latest bailout provisions, which include further cuts to Greece's pension payouts. Greek Prime Minister Alexis Tsipras — elected in January in an anti-austerity groundswell — has rejected such cuts and accused creditors of trying to "asphyxiate" the Greek economy, whose debt mountain of more than 300 billion euros is about 180 percent of GDP.
[The euro steamroller]
Rejection of the bailout terms by voters could set Greece on a course to be pushed from the euro common currency — which other E.U. countries worry could undermine confidence in the euro zone and weaken the goals of ever-closer European integration.
But Varoufakis — apparently seeking to ease worries from Greeks who want to stay in the euro zone — said the government could take its case to the European Court of Justice. Greece has "excellent legal grounds" to resist, he said, since the agreements that established the euro offer no procedures to leave it.
For too long, Greece has allowed itself to accede to last-minute deals that simply pushed its problems down the road, he said.
"The main reason we are rejecting the proposal of the institutions is because what we are effectively being offered is a five-month period, after which we will have exactly the same discussion," he said. "We can't do another extend and pretend."
In Brussels, E.U. envoys scrambled to find a way out. A possible last-minute offer was being hammered out at the urging of European Commission President Jean-Claude Juncker, news reports said. Few details were made public, but Juncker said it could include giving Greece more breathing room to pay back the billions in euros in bailout money.
Still, there was no firm proposal on the table as the hours ticked closer to the dual deadlines that arrive at 1 a.m. Wednesday: the tranche for the IMF and the expiration of the European Union money that has kept Greece afloat.
"Of course, we are not going to cut off our channels of communication after midnight tonight," said German Chancellor Angela Merkel. "That means that the door is open for talks, but that is all I can say at this hour."
In Greece, meanwhile, the economy was near frozen. Fearing a panicked run to withdraw euros, the government has closed banks and set a withdrawal limit of 60 euros ($ 67) per day at ATMs.
"What would happen if Greece came out of the euro? There would be a negative message that euro membership is reversible," said Spanish Prime Minister Mariano Rajoy. "People may think that if one country can leave the euro, others could do so in the future. I think that is the most serious problem that could arise."
On Monday, the ratings agency Standard & Poor's lowered its sovereign rating on Greece to 'CCC minus' from 'CCC.' It said the probability of Greece exiting the euro zone was now about 50 percent.
Some Greek negotiators raised the possibility that the referendum could be called off if Greece reaches an 11th-hour deal. But Varoufakis said it would be a "travesty" if it did not happen.
"The referendum is something that we have a duty to do. It's not a strategy. It's not a tactic," he told The Post. "A byproduct of the referendum is that it concentrates minds, and hopefully speeds up the negotiation process."
Murphy reported from Washington.
Michael Birnbaum is The Post's Moscow bureau chief. He previously served as the Berlin correspondent and an education reporter.
Brian Murphy joined the Post after more than 20 years as a foreign correspondent and bureau chief for the Associated Press in Europe and the Middle East. He has reported from more than 50 countries and has written three books.
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