Greece Bailout Negotiations: European Central Bank Has Contingency Plan For A 'Grexit'

The European Central Bank has a contingency plan for a Greek exit from the eurozone, German daily Der Spiegel reported on Friday, according to the Guardian and Reuters. The ECB declined to comment on the story, but staff is reportedly planning for what would be a devastating blow to both the eurozone and Greece.

Germany, which has led negotiations with Greece over its loans with the ECB, European Council and International Monetary Fund since anti-austerity Greek Prime Minister Alexis Tsipras came to power in January, rejected Greece’s request for a six-month bailout extension, putting Greece in danger of a default and questioning its future within the eurozone. Tsipras remained positive Friday ahead of further talks in Brussels, Belgium, saying he was confident a deal could be made to keep Greece from defaulting in the short term. Without a short-term extension of Greece’s bailout deal, the southern Europe-wide country would likely soon run out of money to pay its debts.

After two weeks of negotiations Greek negotiators offered its creditors, collectively known as the “Troika,” significant concessions in bailout talks on Thursday. The European Commission called Greece’s offer “positive,” but German negotiators rejected the proposal just minutes later, according to BBC News. Both sides have softened their positions in a bid to strike a deal to prevent a European financial crisis.

The negotiations have been described as a game of “chicken” between Greece and Germany, the latter of which is reportedly ready to let Greece exit the eurozone if Greek negotiators refuse certain concessions, according to Bloomberg, which quoted a Maltese official close to the negotiations. A Greek exit, commonly referred to as a “Grexit” could destabilize the eurozone and would send Greece's economy spiraling downward, but Tsipras and his party have threatened a Grexit as a negotiating tool.

Germany is Europe’s largest economy and has bankrolled much of Europe’s bailout deals with Greece and other European economies that were on the road to collapse following the 2008-09 global financial crisis, including Portugal and Ireland.

Tsipras and his anti-austerity Syriza party nearly won a complete majority in snap Greek elections on Jan. 25 on promises the party would renegotiate Greece’s bailout terms so as to end austerity requirements that has left many Greeks without jobs and proper public services. Syriza was hugely popular with Greece’s working class, many of whom rely on state assistance services and lost their government jobs as a result of austerity measures Greece’s creditors required in return for multibillion euro loans.