ATHENS - The Greek central bank has warned for the first time that the country could suffer a "painful" exit from the euro zone and even the European Union if it fails to reach a bailout deal with international creditors.
As euro zone finance ministers descended on Luxembourg yesterday for a meeting once billed as the final chance to reach a deal, the International Monetary Fund (IMF) dashed any hope that Greece could avert default if it fails to repay a €1.6 billion (S$2.4 billion) loan by the end of the month.
"There will be no period of grace," IMF chief Christine Lagarde said at a press conference.
"I have a term of June 30. If it's not paid by July 1, it's not paid."
Greece had already bought itself time by bundling four looming IMF loan payments into one to be paid by the last day of June, becoming the first country to resort to such a possibility since Zambia in the 1980s.
All eyes are on the meeting of the 19 euro zone countries to break the deadlock on negotiations over the release of the last €7.2 billion in aid from Greece's €240 billion international bailout.
But several officials, including Greek Finance Minister Yanis Varoufakis, said they were not expecting a breakthrough in the cash-for-reforms standoff.
Asked during a visit to Paris whether he thought an accord could be reached at the meeting in Luxembourg, Dr Varoufakis said late on Wednesday: "I don't think so. Now it is up to political leaders to arrive at an accord."
Austrian Finance Minister Hans Joerg Schelling even declared the effort to broker the aid deal failed.
"The game is finished," he said, ahead of the Eurogroup meeting yesterday.
Greece cannot "simply reject every proposal", he said.
In a sign that the EU's top financial brass are seriously considering the implications of a "Grexit", the head of Germany's central bank, Mr Jens Weidmann, said it would "change the character of the monetary union" - but not destroy it.
Elected on an anti-austerity platform in January, Greek Prime Minister Alexis Tsipras on Wednesday warned that an EU "fixation" on pension cuts would scupper any hopes of reaching an agreement to avert a catastrophic default.
Mr Tsipras said his government had gone as far as it could to meet the demands of its creditors - the IMF, EU and European Central Bank (ECB) - for tax hikes and pension reform.
In one of the starkest warnings from a Greek institution, the Bank of Greece said failure to reach an agreement would start "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".
Leaving the single currency would lead to a deep recession, dramatic declines in incomes and a spike in unemployment in the southern European nation, the central bank said.
Greek bank deposits had already dropped by nearly €30 billion between last December and April this year to €128 billion, it said. Over the past three days, banks have seen deposit outflows surge to about €2 billion.
Besides the €1.6 billion payment to the IMF due this month, Greece must also fork out €6.7 billion due to the ECB in July and August - payments Greek officials say they cannot afford.
With the ECB reviewing the emergency funding keeping the Greek banking system afloat, German Chancellor Angela Merkel has signalled her desire to keep the process alive at least until next week's summit of European leaders.
"I remain convinced that where there's a will, there's a way," Dr Merkel told lawmakers in Berlin on Wednesday.
"If Greek authorities show this will, then an agreement with the three institutions is still possible," she said.
AGENCE FRANCE-PRESSE, REUTERS, BLOOMBERG