Obama administration urges Europe to avoid Greek meltdown

ATHENS / WASHINGTON - Reuters

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The Obama administration warned Europe on July 8 that allowing a financial and economic meltdown in Greece would be a geopolitical mistake, as the race to save Greece from bankruptcy and keep it in the euro gathered pace when Athens formally applied for a three-year loan and European authorities launched an accelerated review of the request.

U.S. Treasury Secretary Jack Lew said he had been in constant contact with European officials regarding the Greek debt crisis that threatens to lead Athens to exit the eurozone and increase hardship for the Greek people. 

“There are a lot of unknowns if this goes to a place that completely melts down in Greece,” Lew said. “I think that unknown is a risk to the European and global economy ... I think it’s geopolitically a mistake.” 

The Republican chairman of the U.S. House of Representatives tax-writing committee, however, said Germany had “no choice” but to take a tough line on Greek debt. 

“I don’t think they have a choice in Europe. That choice is up to the Greeks and we’ll see if they come back to terms, but it certainly doesn’t look like that at the moment,” Representative Paul Ryan said in a televised Politico forum. 

“I don’t see that the Germans have a choice but to take the line that they’re taking,” Ryan added.  

Following phone calls from U.S. President Barrack Obama with German Chancellor Angela Merkel and Greece Prime Minister Alexis Tsipras on July 7, White House spokesman Josh Earnest said an agreement was “in everyone’s best interest.” 

“The United States continues to encourage all sides to come to an agreement that will keep Greece in the eurozone, which U.S. officials believe is in everyone’s best interest.” 

Emergency meeting at weekend

Meanwhile, Tsipras raced yesterday to finalize a tough package with tax hikes and pension reforms due within hours if Athens is to win a new aid lifeline from creditors and avoid crashing out of the euro.

Greece’s European partners want the reforms proposal on the table by today (July 10) and Athens had promised to produce it by yesterday (July 9) at the latest. If satisfied, European leaders would endorse the package on July 12, averting a potential Greek exit from Europe’s single currency.

The Greek daily Kathimerini said the package was worth 12 billion euros, bigger than a previous 8 billion euro plan because the economy, battered by two weeks of capital controls, was now expected to shrink 3 percent instead of growing 0.5 percent this year. 

With banks shuttered and the economy grinding to a halt after two weeks of capital controls, Syriza rebels will have a tougher time making their case against any deal with creditors that paves the way for banks to open again.

The head of the Eurogroup of finance ministers of the 19-nation currency area, Jeroen Dijsselbloem, asked the European Commission and the European Central Bank to evaluate the loan request, assess Greek debt sustainability and study whether Greece poses a risk to the financial stability of the eurozone. 

Eurogroup ministers will meet on July 11 to be in a position to recommend a loan, and some emergency bridging finance, which a full summit of the 28 EU leaders would approve on July 12 if they are satisfied with Greek reform commitments.