Battered by multiple recessions, buried in increasingly costly debt and up against implacable creditors, Greece seems to be running out of options. Just a day before the deadline for a compromise on Greek debt, negotiations between Athens and stubborn European authorities hit another impasse.

“It’s like a game of chicken,” says Nicholas Economides, professor of economics at NYU's Stern School of Business. “Both sides are giving ultimatums to each other. This is not the right way to negotiate.”

On Thursday, Greece officially requested a six-month extension on loans from its eurozone creditors, hoping for some breathing room in advance of negotiating a longer-term solution. The last-gasp effort comes after weeks of increasingly urgent talks. Greece’s left-wing Syriza party has scaled back its ambitious proposals while its German-led EU counterparts have stood by their unwavering demands.

It didn't take long for Germany’s finance minister to reject the measure. “The letter from Athens is not a substantive proposal for a solution,” a German spokesman said. “The text does not meet the conditions agreed on Monday in the Eurogroup.”

Germany’s abrupt response characterizes the strain between Europe’s economic giant and Greece. “I was surprised by this rejection letter,” says Grégory Claeys, a research fellow at Brussels think tank Bruegel. Greece addressed its request to the bloc of European finance ministers known as the Eurogroup, who collectively hold most of Greece’s debt. But it was Germany, Greece’s largest debt-holder and chief negotiating opponent, that responded immediately and first.

“It doesn’t mean anything," Claeys says, noting the Friday meeting when all Eurogroup partners will discuss the request. "Maybe other parties will have a different opinion.”

Though many see the request as Greece bowing further to eurozone demands, the letter left much to the imagination. “They want an extension of the loans with conditions that are very vague and less strict,” says Economides. “It is very unlikely to be given.”

At issue is how Greece will pay back a bailout package totaling $273 billion, granted in 2010 and extended in 2012 amid the global financial crisis. To stave off a foundering Greece’s utter collapse, the so-called Troika – consisting of the eurozone countries, the European Central Bank and the International Monetary Fund – extended massive loans.

Those loans didn’t come easy, though. Greece agreed to punishing austerity measures that included public-sector cuts, tax increases and privatization of public holdings. The sudden belt-tightening failed to lift Greece out of its depression, but it did spur massive protests that helped propel the leftist Syriza government to power this year.

Syriza promised to fight for write-offs of Greek debt and to reject the austerity measures tied to future loans. But the party’s more radical demands quickly fell off as Finance Minister Yanis Varoufakis began negotiating with his European partners earlier this month.  

Still, with a Friday deadline approaching, Athens hasn’t managed to satisfy eurozone finance ministers. Failing to reach an agreement would likely spell disaster for Greece, which would not only lose the European Central Bank funding that keeps its banks afloat, but likely its membership in the eurozone. Economists estimate that government coffers would run dry in March.

“An exit from the euro is catastrophic,” says Economides. “Greek banks would collapse. It would be a total disaster.” Greeks would become immediately poorer as inflation skyrocketed and credit dried up.

But Greek default or exit from the eurozone – a so-called Grexit – could also be costly for wider Europe. European governments have some $280 billion wrapped up in Greek debt. And if one country forsakes the euro, it could encourage others to leave when times are tight. “If everybody could get out of the club,” says Claeys, “it would be dangerous for the whole project.”  

Despite rumblings from some European leaders that they’d be better off parting ways with Greece, "nobody really wants it,” says Claeys. Around 70 percent of the Greek public rejects the notion of a Grexit, and Syriza has consistently reaffirmed its commitment to the euro. “Everyone wants Greece to stay in the eurozone,” Claeys says.

Still, a slight possibility remains that the Grexit nightmare could become a reality. Economides compares it to the collapse of Lehman Brothers, the U.S. investment bank that stunned investors by going suddenly bankrupt in 2008. “Nobody thinks that anything will happen,” he says. “Then it happens.”

Claeys, however, strikes an optimistic note. “In the end they’re quite close on substance. I think there is some room to find a solution,” he says, noting how much Syriza has moderated its stance. “Now it’s more about semantics.”