Varoufakis said he expects Greeks to reject the bailout proposal, which would require tax increases and spending cuts in exchange for further aid. He said he would rather "cut off his own arm" than sign a new deal that does not restructure Greece`s debt.
On Wednesday, Greek Prime Minister Alexis Tsipras said he is sticking with plans for Sunday`s referendum, but expressed willingness to accept terms much like those his government has previously rejected.
In response, German Chancellor Angela Merkel again said there will be no more negotiations until the outcome of Sunday`s referendum is clear.
Greece is cut off from further European aid, after failing on Tuesday to meet a midnight deadline for repaying $1.8 billion to the International Monetary Fund. That default marked the first time a developed country has failed to meet a payment deadline on an IMF loan.
Some analysts suggested Wednesday that the prime minister`s willingness to make the $1.8 billion IMF payment, while insisting on the referendum as well, is part of a strategy aimed at gaining leverage in future talks on $32.4 billion in new European funding.
The prime minister, speaking Wednesday on national television, seemed to confirm that strategy, saying Greek envoys will return to the negotiating table after Sunday`s vote seeking "better terms for the Greek people."
Greece has amassed a huge debt over the last five years. As a condition for new loans, lenders have insisted the government must introduce more austere economic reforms. But until now, the government has balked at such demands. Greece says its citizens have suffered enough with spending cuts and tax increases that have lowered their standard of living.
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