FRANKFURT—The European Central Bank upped the pressure on Greece Thursday, suggesting that if the country didn't reach a deal with its creditors quickly, it risked worsening conditions under which some of its other embattled eurozone partners can borrow.

"Financial market reactions to the developments in Greece have been muted to date, but in the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro area sovereigns could materialize," said the ECB in its Financial Stability Review.

"Default risk expectations have increased sharply in Greece amid heightened political uncertainty," the report said.

The struggling Mediterranean state is currently in protracted negotiations with its eurozone creditors over the future of its bailout deal. While recently, Greek leaders have said that an agreement is near, other eurozone leaders, such as German Finance Minister Wolfgang Schäuble, have shed doubt on such claims.

"We always hear positive news coming out of Greece, which is good. However, we haven't gotten much further in substance in the negotiations between the three institutions and the Greek government," Mr. Schaeuble said on German public broadcaster ARD on Wednesday.

The ECB also said in its twice-yearly report that "the prospect of an environment of low nominal growth remains the major factor underlying current challenges for financial stability in the euro area."

The ECB again stressed the need for structural changes saying that while monetary policy "can support the conditions for economic growth," other policies, such as structural reforms "are needed to underpin sustainable economic growth in the euro area."

ECB Vice President Vitor Constancio told reporters that "the financial stability situation in Europe has improved," and "one can say that our policies are working."

In March, the ECB started a broad-based asset-buying program, known as quantitative easing, where it will buy €60 billion ($65.64 billion) a month of mostly government bonds until the end of Sept. 2016 in an effort to prop up inflation.

Mr. Constancio said he doesn't see evidence of generalized overvaluation in asset markets, but flagged this as a risk.

"The main risk is the possibility of a reversal of asset valuations...that would induce capital losses and disturb the recovery if it would happen."

Mr. Constancio said he was convinced that Greece won't exit the euro. "It is difficult to build up a narrative where that extreme case can happen," he said. A country cannot legally be expelled from the currency bloc, he noted, adding that a rising share of Greek citizens have said they want to stay in the euro.

Write to Todd Buell at todd.buell@wsj.com and Brian Blackstone at brian.blackstone@wsj.com

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