Will Greece exit the euro bloc? Or the EU even?

As the expiration date for an EU bailout nears, Greece and its creditors stood in sharp disagreement over solutions to preventing the nation from defaulting.

Yannis Behrakis/Reuters
Greek flags fly in front of the parliament during a pro-government rally calling on Greece's European and International Monetary creditors to soften their stance in the cash-for-reforms talks in Athens, Wednesday. The Greek central bank warned that the country risked a painful exit from the euro and ultimately even the European Union if Athens and its creditors do not strike a swift aid-for-reforms deal.

Greece and its creditors took shots at each other on the eve a meeting of finance ministers tasked with finding a way to keep the nation from defaulting on its debt and, in the words of its central bank, suffering "a dramatic decline" in income.

Greek Prime Minister Alexis Tsipras called demands by the country's rescue lenders to slash pensions "incomprehensible," while European Union officials said their compromise proposals already leaned way over to Greece's side.

And instead of carping about the proposals made by the creditors, Greece should offer a more realistic plan, EU Commission Vice President Valdis Dombrovskis said. "It is important that the Greek side actually not only communicates what they do not want to do, but also what they do want to do."

Greece needs to get more loans from its creditors before June 30, when its bailout program expires and it is scheduled to make a 1.6 billion euro ($1.8 billion) debt repayment to the International Monetary Fund. The creditors want Greece to make economic reforms and Athens is balking.

If no deal is reached, Greece would face "dramatic" economic consequences, the country's own central bank warned.

Creditors had until last week pegged Thursday's eurogroup meeting in Luxembourg of the 19 finance ministers of the eurozone as a date by which a breakthrough in the talks would have to be reached. Those expectations have faded, however, as both sides remain at odds over what reforms Greece should make.

"The chance of agreement on Thursday is very small," Jeroen Dijsselbloem, the president of eurozone finance meetings, told Dutch lawmakers.

Tsipras said his government wants "an honorable compromise," but warned that failing to reach a deal would hurt not only Greece's economy but also the rest of Europe.

"If Europe insists in this incomprehensible option — if its political leadership insists — then they must bear the cost of developments that will not be beneficial for anyone on Europe," Tsipras said after meeting Wednesday with Austrian Chancellor Werner Faymann.

Leaving the euro would clearly be economically painful for Greece, but economists disagree over how bad it would be for the rest of Europe. Many say the region's defenses against market turmoil have improved in recent years, but others note that nobody really knows what the impact might be — and that uncertainty can be dangerous.

Some member states are increasingly seeing a Greek exit, or Grexit, as a possibility, Dombrovskis acknowledged. "We are in the middle of June. By end of June, the current program expires and there are of course some discussions also on less favorable scenarios," he said.

Tsipras' five-month-old left-wing government wants new terms for its bailout program after previous administrations imposed draconian spending cuts and tax increases for five years. Those austerity measures helped reduce the public deficit but ravaged the economy and made most Greeks poorer.

Faymann said a deal would likely involve a further extension of the current bailout program, adding that he did not personally support any further "cross-the-board" pay cuts.

EU officials said they had already lowered their demands for a primary budget surplus this year from 3 percent to 1 percent and agreed to make the increase in the surplus over the next years more gradual. A primary surplus is how much a government earns when not counting the costs of interest payments on debt.

And in response to Tsipras' insistence that creditors were seeking to financially choke pensioners, EU financial affairs Commissioner Pierre Moscovici said the EU "wants to make sure that people who don't have much of a pension still get that pension."

To make more budget cuts, EU officials have been calling on Athens to slash defense spending instead.

"We still have a few gaping holes in what we have now. Budgetary holes, but also in terms of reforms. For example, the pension system will have to be made sustainable," Dijsselbloem said.

Greece has fallen back into a mild recession and market concerns are growing about a default. That is evident in a rise in its sovereign borrowing rates — the interest rate on the country's 2-year bond surged Wednesday to above 30 percent.

Issuing its annual report, Greece's central bank warned that the country would face an exit from the euro bloc and even the European Union if it fails to reach a deal with bailout creditors.

The Bank of Greece said Greeks would face a "deep recession (and) a dramatic decline in income levels" in that case.

"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 central bank statement said.

It warned the renewed recession could be difficult to emerge from.

Raf Casert reported from Brussels. Lorne Cook in Brussels and Mike Corder in The Hague, Netherlands, also contributed.

Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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