The rollercoaster ride that is Greece's debt crisis lurched lower again Friday with a stark warning from the International Monetary Fund.
IMF Managing Director Christine Lagarde told a German newspaper that a Greek exit from the eurozone was "a possibility."
Such a step would not be a "walk in the park," she was quoted as saying by the Frankfurter Allgemeine Zeitung, but would not mean "the end of the euro."
Signs of progress in talks between Greece and its international creditors earlier this month have evaporated, and time is fast running out for Athens.
Greece has survived for nine months without access to the final 7.2 billion euro ($7.9 billion) tranche of its 240-billion euro bailout, but only by forcing local government and other public bodies to hand over cash reserves, and by tapping an emergency account to make an interest payment to the IMF.
The Greek government's finances are being squeezed ever tighter. It paid public sector wages and pensions estimated at more than 1.5 billion euros Friday; and in a week's time it has to make another IMF interest payment of about 300 million euros.
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Some Greek officials have warned that it won't be able to make the IMF payment next week unless other eurozone governments agree to release more funds.
Greece could, if needed, ask the IMF to combine that repayment with others due in June, and pay them all -- about 1.6 billion euros -- towards the end of the month.
Either way, suggestions that agreement is close on a package of reforms acceptable to Greece's anti-austerity government and its creditors seem wide of the mark.
"It is very unlikely that we'll see a comprehensive solution in the next few days," Lagarde told the German newspaper.
The pressure is building on the Greek government. The economy is back in recession and the withdrawal of deposits from Greek banks appears to be accelerating again.
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"Every day of delay deepens the recession, destroys international trust, reduces bank deposits, hurts companies and increases job losses," noted Christian Schulz at Berenberg bank.
Any suggestion that Greece can't repay its bills could force the government to introduce capital controls to prevent a full-blown run on the banks.
The European Central Bank said Thursday that the banking sector had already seen "substantial deposit outflows."
Nervousness about the risk of a Greek default unsettled European stock markets Friday, and the yield on Greek government bonds widened. Germany's DAX index closed down 2.3%
But some analysts warn that investors remain overly optimistic about the ability of Greece and its creditors to find a workable compromise in time.
According to Oxford Economics, the market in Greek government bonds puts the risk of an exit from the eurozone at 38%. It believes the probability is nearer 48%.
"Agreement is still our baseline [forecast]," wrote Gabriel Sterne, Oxford Economics' head of macro research. "But the outcome is more finely balanced than priced in by markets."
