By Simon Miller
The Bundesbank has said a Greek exit would be manageable in its strongly-worded monthly report today.
The German Central Bank noted that Greece was threatening not to implement the reform and consolidation measures that were agreed in return for aid.
However it added: “This jeopardises the continued provision of assistance. Greece would have to bear the consequences of such a scenario. The challenges this would create for the euro area and for Germany would be considerable but manageable given prudent crisis management.”
The Bundesbank warned against an easing of conditions as it would “damage confidence in all European area agreements and treaties and strongly weaken incentives for national reform”.
The bank suggested that the eurozone central banks had assumed considerable risks by providing Greece with large amounts of liquidity and "in light of the current situation, it should not significantly increase these risks".
"Instead, the parliaments and governments of the member states should decide on the manner in which any further financial assistance is provided and therefore whether the associated risks should be assumed."
The Bundesbank’s comments come after reports that the eurogroup has begun making contingency plans for a Grexit, although this was denied by new French President Francois Hollande.