Divisions Emerge in Athens on Deal

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from The Wall Street Journal,

Report warns of ‘uncontrollable crisis’ without a deal; ECB drawn into fray.

Greece’s central bank, in unusually stark language that angered the ruling party, warned Wednesday that failure to clinch a deal with international creditors on desperately needed funding could “snowball into an uncontrollable crisis” for the country.

The left-wing party Syriza responded by accusing the central bank of overstepping its role and undermining the government’s negotiating position. The standoff between Athens and its lenders has become politically charged, with each side deeply mistrustful of the other and neither showing signs of giving ground.

The European Central Bank—which includes the Bank of Greece as a member—is facing increasingly tough decisions as the threat of default grows, underlining how even institutions that strive to remain above politics are being drawn into the fray.

“They’re under pressure from a lot of sides,” said Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics.

If the ECB decided to restrict Greece’s access to these emergency loans, it could quicken the deposit outflows and intensify the crisis—even trigger a Greek exit from the euro.

But if the ECB keeps the spigots open in the absence of hope for a bailout deal, the Frankfurt-based bank’s own credibility could be damaged by giving the appearance that it was bending its rules under political pressure.

With time running out, Athens and its lenders—other eurozone countries and the International Monetary Fund—appear deadlocked over how much more Greece must tighten its belt in exchange for needed funding. The eurozone portion of Greece’s €245 billion bailout expires on June 30, the same day Greece faces a €1.5 billion payment to the IMF.

“A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability” if a deal doesn’t come through, the Bank of Greece report said.

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