The Greek central bank warned for the first time on Wednesday that the country could suffer a "painful" exit from the eurozone and even the EU if it fails to reach a bailout deal with international creditors.
The warning came as negotiations over the release of the last 7.2 billion euros ($8.1 billion) in rescue funds from Greece\’s massive international bailout remained deadlocked, with payment deadlines looming.
All eyes are on a meeting of the 19 eurozone countries to take place Thursday in Luxembourg, but several officials including Greek Finance Minister Yanis Varoufakis said they were not expecting a breakthrough there either.
Asked during a visit to Paris whether he thought an accord could be reached at the meeting of eurozone finance ministers in Luxembourg, he said late Wednesday: "I don\’t think so. Now it is up to political leaders to arrive at an accord."
Greek Prime Minister Alexis Tsipras has repeatedly attempted to extract a deal directly from fellow political leaders, to no avail.
On Wednesday he warned that an EU "fixation" on pension cuts would scupper any hopes of reaching an agreement to avert a catastrophic default.
"There is no room for further cuts without affecting the core of the (pension) system," Tsipras said after meeting with visiting Austrian Chancellor Werner Feymann, one of the few European leaders supporting Greece in the talks.
"This insistence on cutting pensions is incomprehensible," the Greek premier said. "If Europe insists on this incomprehensible fixation… it must accept the cost of a development that will benefit no one in Europe."
In one of the starkest warnings so far from a Greek institution, 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."
The central bank also said Greek bank deposits had fallen by nearly 30 billion euros between December and April, to 128 billion euros.
To help the banks cope, the European Central Bank increased its emergency liquidity assistance by 1.1 billion euros.
The Bank of Greece insisted that only a "little ground" separated the two sides in the talks.
Relations between Bank of Greece governor Yiannis Stournaras and the ruling radical left Syriza party have been strained from the start, with the leftists trying to block his appointment last June.
Analysts have long warned that a default could set off a chain of events leading to a messy exit from the eurozone.
Tsipras said Wednesday that his government had gone as far as it could in meeting the demands of the International Monetary Fund, European Union and European Central Bank for tax hikes and pension reform in return for bailout funds.
"Our proposals fully safeguard the fiscal targets the institutions set for 2015-2016," he said.
He said he was prepared to shoulder the political cost of a deal in Greece\’s parliament — providing it was an "honest compromise".
"If we do not (get an honest deal), it is us again who will say the great \’no\’ to continuing a disastrous policy," he added.
Athens on Wednesday raised 1.3 billion euros in three-month treasury bills at steady interest.
The stock exchange fell 3.15 percent, its fourth straight day in the red.
The head of the eurozone countries, Jeroen Dijsselbloem, said Wednesday he was still working to keep Greece within the fold and dismissed any predictions about a so-called Grexit as premature.
A senior US official on Wednesday also urged Greece to make "a serious move" to help clinch a deal.
Athens needs to make "a serious move to reach a pragmatic compromise with its creditors…Failure to reach an agreement would create immediate hardship for Greece and broad uncertainties for Europe and the global economy," said US State Department Deputy Assistant Secretary for European and Eurasian Affairs Amanda Sloat.
Greece is due to make a 1.6 billion euro payment to the IMF at the end of the month, with another 6.7 billion euros due to the ECB in July and August — payments that Greek officials say they cannot afford.
With his creditors saying his reform proposals are insufficient, Tsipras on Tuesday accused creditors of trying to "humiliate" his country.
Elected on an anti-austerity platform in January, Tsipras has been reluctant to accept any further cuts.
European Commission head Jean-Claude Juncker hit back by accusing Tsipras of misleading Greek voters.
"The debate in Greece and outside Greece would be easier if the Greek government would tell exactly what the Commission… are really proposing," Juncker said.
Polls show most Greeks support the government\’s negotiating strategy, though its approval rating has steadily fallen in recent months.
Some 4,000 people gathered in Athens and another 1,000 in Thessaloniki on Wednesday to protest against the creditors\’ demands for further cuts, police said.
A union close to the ruling Syriza party unfurled banners from the balcony of the EU offices in Athens. reading: "The people cannot be blackmailed, the country isn\’t for sale."
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."