The Greek finance minister has joined several Eurozone officials in doubting a breakthrough could be achieved in talks today to reach a vital bailout deal with international creditors.
Photo: Greek finance minister Yanis Varoufakis said they were not expecting a breakthrough in 19-nation talks. (Reuters: Francois Lenoir)
Its central bank has warned for the first time the country could crash out of the Eurozone, and even the European Union, if it fails to achieve a result.
In a stark warning, the Bank of Greece said: "Failure to reach an agreement would ... mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and — most likely — from the European Union".
Analysts have long warned that a default may set off a chain of events leading to a messy exit from the Eurozone, a so-called Grexit, but not the country leaving the EU altogether.
The British government said it was accelerating preparations for a possible Greek exit from the Eurozone.
"You can expect that we are continuing to make sure we have the right plans in place and stepping up preparations given where discussions have got to," a spokeswoman for prime minister David Cameron said.
The Bank of Greece firmly believes that striking an agreement with our partners is a historical imperative that we cannot afford to ignore.
Greece central bank
All eyes are on a meeting of the 19 Eurozone countries to take place in Luxembourg today, but several officials including Greek finance minister Yanis Varoufakis said they were not expecting a breakthrough.
Asked during a visit to Paris whether he thought a deal could be reached, Mr Varoufakis said: "I don't think so. Now it is up to political leaders to arrive at an accord."
Negotiations over the release of the last 7.2 billion euros ($10.5 billion) in rescue funds from Greece's massive bailout from the International Monetary Fund (IMF), EU and European Central Bank (ECB) are deadlocked as payment deadlines loom.
Yet while the atmosphere between Greece and its creditors deteriorated in recent days, the Bank of Greece insisted the two sides were not that far apart, with only "little ground" between them before a deal could be struck.
Greece is due to make a 1.6 billion euro ($2.3 billion) payment to the IMF at the end of the month, with another 6.7 billion euros ($9.8 billion) due to the ECB in July and August — payments which Greek officials said the government could not afford.
With his options running out and his creditors saying his reform proposals are insufficient, Greek prime minister Alexis Tsipras on Tuesday angrily accused creditors of trying to "humiliate" his country.
Elected on an anti-austerity platform in January, Mr Tsipras was reluctant to accept any further tax hikes and spending cuts.
European Commission head Jean-Claude Juncker hit back by accusing Mr Tsipras of misleading his own voters.
"I think the debate in Greece and outside Greece would be easier if the Greek government would tell exactly what the Commission ... are really proposing," he said.
Calls for 'willingness on debt relief'
The Bank of Greece said that if the country left the 19-strong group of countries using the euro it would lead to a deep recession, dramatic declines in incomes and a spike in unemployment in the southern European nation.
"This is why the Bank of Greece firmly believes that striking an agreement with our partners is a historical imperative that we cannot afford to ignore," it said.
"From all the evidence available so far, it seems that a compromise has been reached on the main conditions attached to this agreement and that little ground remains to be covered."
What we need today is a viable debt deal which will spare future generations burdens that we have no right to saddle them with.
Greek central bank
The focus is now on the meeting of Eurozone finance ministers on Thursday.
Before that, the head of the IMF Christine Lagarde will give a speech in Brussels on Wednesday in which she is likely to respond to Mr Tsipras' claims that creditors want to bring Greece to its knees.
When it comes to the terms of a potential new deal on the bailout, the Bank of Greece backed the government's position that after years of austerity and the worsening of the economic situation, Greece needs further time to pay back the billions it borrowed.
In particular, it raised the politically-sensitive subject of relief on the country's debt, which is now mostly held by Greece's European partners as the bailout funds have been in loans.
The central bank called for the "reaffirmation and articulation in more specific terms of our partners' willingness to provide debt relief".
Greek leaders of all political colours have never forgotten the prospect, raised three years ago by Eurozone ministers, that in return for reforms Greece could have some of its debt written off.
But it appears extremely unlikely that Greece's Eurozone partners will return to this idea any time soon as it would face likely fierce political opposition in a number of countries, especially Germany.
Despite writing off 107 billion euros ($157 billion) of debt to private creditors as part of its second bailout in 2012, Greece's debt load actually shot up to 177 per cent of national output last year due to the fact its bailout has been in loans and that the recession wiped out a quarter of the economy.
"What we need today is a viable debt deal which will spare future generations burdens that we have no right to saddle them with," the central bank said.
The Bank of Greece however called for structural reforms of the Greek economy, as has been demanded by the EU and IMF.
From other news sites:
- BBC: Greek central bank warns of 'painful' euro and EU exit
- The Guardian: Greek exit real prospect as Eurozone hardens towards belligerent Athens
- Sky News: Greece says it could exit EU without deal
- The Australian: IMF trying to 'humiliate' Greece: Tsipras
- Deutsche Welle: Tsipras misleading Greece, says EU commission chief Juncker