Greek central bank warns of ‘uncontrollable crisis’

Bank of Greece says failure to reach agreement with creditors could put country on path to default as well as exit from eurozone

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

Greece’s central bank has warned that the country could be en route to defaulting from its debts as well as facing an exit from both the eurozone and the EU, with the country’s government and global creditors continuing to blame each other for not being able to reach a deal over austerity reforms.

"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 bank said in a report on Wednesday.

The failure to reach a deal between Greece and its international creditors is holding up the release of €7.2 billion ($8.1 billion) in bailout funds for the country.

“A manageable debt crisis ..would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability,” if Greece and its global creditors are not able to clinch a deal, the bank said in the report.

This could cause a deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved during the years the country has been an  EU and eurozone member, the report added.

The possibility of Greece paying the $1.7 billion it owes the IMF later this month will drop significantly if the likelihood of successful negotiations further fades.

Austrian Chancellor Werner Faymann was in Athens on Wednesday in a last minute attempt to end the impasse. "For Europe to be stronger, it must show solidarity and support to any country which needs it," he said during a meeting with Greek President Prokopis Pavlopoulos.

The meeting comes ahead of a meeting of eurozone finance ministers on Thursday. Faymann’s comments followed statements from European Commission President Jean-Claude Juncker, who said on Tuesday the Greek government is misleading voters. On the other hand, Greek Prime Minister Alexis Tsipras has accused the EU and the IMF of trying to "humiliate" his country.

TRTWorld and agencies