Greece's Central Bank Warns of 'Painful' European Union Exit Without Deal

A Greek flag flutters in Athens on Wednesday behind a statue of founder of the modern Greek state Ioannis Kapodistrias. Yannis Behrakis/Reuters

Greece's central bank on Wednesday warned for the first time that the country could be put on a "painful course" and exit from both the eurozone and European Union if the government fails to reach an aid agreement. The bank also cautioned there could be an increase in the country's economic slowdown.

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 of Greece wrote Wednesday in a regularly scheduled report. "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."

The country's leaders and international creditors have failed to reach a deal over economic reforms. If creditors don't reach an agreement by the end of the month, Greece must repay 1.6 billion euro ($1.8 billion) to the International Monetary Fund (IMF) or default.

Europe and the IMF first agreed to bail out Greece in May 2010, with the hope of returning the country to growth within three years. But the two sides remain at a standstill, as the ideological divide continues to grow, according to The Wall Street Journal.

The warning came Wednesday as Prime Minister Alexis Tsipras of Greece and eurozone officials continue to debate ahead of a finance ministers meeting on Thursday.

The bank also warned of a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has gained over the years of its participation in the EU.

"From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South," according to the bank. "Striking an agreement with our partners is a historical imperative that we cannot afford to ignore."

Greece's Central Bank Warns of 'Painful' European Union Exit Without Deal | World