06/17/2015 11:24 EDT | Updated 06/17/2016 05:59 EDT

Eurozone, U.K. quietly prepare for Grexit amid war of words over bailout

The British government and other EU members are making preparations for a possible Greek exit from the eurozone as tensions ratchet up between Greece and its creditors.

Greek Prime Minister Alexis Tsipras yesterday called demands by the lenders to slash pensions "incomprehensible" after fresh failures in the bailout talks. Meanwhile, EU leaders toughened their talk, telling Greece to be more realistic.

In its annual report, the Greek central bank warned of "dramatic" economic consequences for Greece if no bailout terms are reached.

That has British Prime Minister David Cameron worried about the economic risk to Britain of Greece abandoning the euro and possibly the European Union as well.

"You can expect that we are continuing to make sure we have the right plans in place and stepping up preparations given where discussions have got to," a spokeswoman for the prime minister said Wednesday. The U.K. is examining the potential impact on business, banks, the financial sector and tourists.

European Commission vice-president Valdis Dombrovskis said all the eurozone members are looking at their options if Greece exits the euro.

"So, it's understandable that also euro area member states are nervous, and there are some discussions in (the) euro working group (about) the possible implications of some less favourable scenarios," said Dombrovskis.

Portugal says 'we're not next'

Meanwhile, Portugal hastened to reassure lenders that it would not be following Greece into default. Creditors have an eye on Portugal's debt situation, but the country says it has enough cash to last until the end of the year.

Prime Minister Pedro Passos Coelho told an investor conference that "if something bad happens to Greece, Portugal won't be the next to fall."

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 ($2.2 billion Cdn) debt repayment to the International Monetary Fund.

But Tsipras and his Syriza party have balked at terms that would involve lowering pensions and maintaining austerity measures that have already pushed Greece into recession.

War of words

"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 Wednesday, in his harshest words to date.

Tsipras warned that "further cuts to pensions after five years of looting under the bailouts can only be viewed as serving political expediency.

"We will patiently wait until creditors turn to realism. We have no right to bury the European democracy in the land where it was born."

The 19 finance ministers of the eurozone are set to meet Thursday, and creditors had hoped there would be a deal on Greece by then. But now, officials are saying the chance of a deal is small.

Jeroen Dijsselbloem, the president of eurozone finance meetings, said Greece should slash its defence spending and increase value added taxes.

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."

Greece's central bank warned that Greece would face a "deep recession (and) a dramatic decline in income levels" if it fails to reach terms on a bailout.