Failing to reach a deal would hurt not only Greek economy but also rest of Europe, officials on both sides warn.
Eurozone finance ministers are set to hold crunch talks over Greece, after a barrage of warnings that the country risks a damaging exit from the EU if it fails to strike a deal with its creditors.
As eurozone officials from 19 countries meet on Thursday in Luxembourg, Germany’s central bank chief Jens Weidmann told the French newspaper Les Echos that the euro will not fall if Greece quits the single currency area.
“The continued existence of the euro is not tied to the development in Greece. But certain contagion effects cannot be ruled out because the character of monetary union would be altered by a ‘Grexit’,” Bundesbank president Weidmann said.
Negotiations between Athens, the EU, ECB and IMF over the last $8.1bn tranche of Greece’s massive international bailout have grown increasingly acrimonious this week.
Ahead of the Thursday meeting, Greece’s central bank warned for the first time that the country could suffer a “painful” exit from the single currency area if it fails to reach a deal.
Despite the warnings, and a looming deadline for Greece to repay the IMF by the end of June, Greek Finance Minister Yanis Varoufakis said he does not expect the reforms-for-cash standoff to be finalised at the talks.
“I don’t think so,” he said when asked during a trip to Paris on Wednesday if he expected an agreement. “Now it is up to political leaders to arrive at an accord.”
Al Jazeera’s John Psaropoulos said that it is unlikely that the Greek public is willing to accept more cuts in spending.
“Austerity is now a foul word to them, and they won’t accept more of it,” Psaropoulos, reporting from Athens, said.
On Wednesday, thousands rallied in the Greek capital Athens in support of the government’s fight against the EU.
Underscoring growing global concern about the fallout from the crisis, US Federal Reserve Chair Janet Yellen warned the world economy could see significant turmoil if Greece and its creditors failed to do a deal.
“In the event that there is not agreement I do see the potential for disruptions that could affect the European economic outlook and global financial markets,” Yellen said.
Elected on an anti-austerity platform in January, Greek Prime Minister Alexis Tsipras warned on Wednesday that an EU “fixation” on pension cuts would scupper any hopes of reaching an agreement.
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“There is no room for further cuts without affecting the core of the (pension) system,” Tsipras said.
“If Europe insists on this incomprehensible fixation… it must accept the cost of a development that will benefit no one in Europe.”
The prospect that Athens could default came into focus after talks collapsed on Sunday, prompting Greece’s central bank to issue one of the starkest warnings from inside the country of the consequences of crashing out of the single currency.
The mounting pressure has frayed tempers, illustrated by the public falling out between Tsipras and European Commission chief Jean-Claude Juncker, who has accused the Greek premier of misleading Greek voters about the talks.
Polls show most Greeks support the government’s negotiating strategy, though its approval rating has steadily fallen.
Tsipras is also set to travel to the St Petersburg International Economic Forum on Thursday and is scheduled to hold talks with President Vladimir Putin on Friday – a sign, some observers say, the Greek premier is trying to show Europe he still has other cards to play.