Eurozone tells its members to prepare for 'Grexit'

Euro zone officials have told members of the currency area to prepare contingency plans in case Greece decides to quit the bloc, an eventuality which Germany’s central bank said would be “manageable”.

Three officials said that the instruction was agreed on Monday by a teleconference of the Eurogroup Working Group (EWG) - experts who work on behalf of the bloc’s finance ministers.

“The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro,” said one euro zone official.

The news comes at a highly sensitive time, just hours before EU leaders gather to try to breathe life into their struggling economies at a summit over dinner on Wednesday.

Although minds will be focused by the prospect of Greece exiting the currency area, which has earned the monicker “Grexit,” disagreements over a plan for mutual bond issuance and other measures to alleviate two years of debt turmoil have already been laid bare.

In its monthly report, Germany’s Bundesbank said the situation in Greece was “extremely worrying” and it was jeopardising any further financial aid by threatening not to implement reforms agreed as part of its two bailouts.

It said a euro exit would pose “considerable but manageable” challenges for its European partners, raising pressure on Athens to keep its painful economic reforms on track.

Greek officials have said that without outside funds, the country will run out of money within two months. For the first time in more than two years of debt-crisis meetings, the leaders of France and Germany have not huddled beforehand to agree positions, marking a significant shift in the Franco-German axis which has traditionally driven European policymaking.

No decisions will be made at the summit, which is intended to promote ideas on jobs and growth ahead of another meeting at the end of June, but it is clear the debate will be intense, not just over euro bonds but over how to rescue European banks and whether to give more time to struggling euro zone countries to meet their budget deficit goals. Officials tried to play down any prospect of a rift.