Obama administration warns of knock-on effect of Greek crisis

US treasury secretary urges eurogroup to find a ‘pragmatic compromise’ for Greece

US president Barack Obama: keeping in touch with European leaders as US continues to monitor the Greek debt crisis. Photograph: Saul Loeb/AFP/Getty images

US president Barack Obama: keeping in touch with European leaders as US continues to monitor the Greek debt crisis. Photograph: Saul Loeb/AFP/Getty images

 

The Obama administration has again warned of the potential damage to the European economy and the knock-on effect on the US economy if the Greek debt crisis is not resolved.

President Barack Obama’s press secretary Josh Earnest said the US economy didn’t have much exposure to Greece but warned about the effect of the crisis on the EU economy.

“The failure to resolve the ongoing negotiations among Greece and their creditors could have an impact on the broader European economy and obviously there is a lot of exposure from the European economy to the US economy,” he told reporters on a presidential trip to Nashville.

He urged all parties to try to resolve the impasse over the debt crisis. “It is everybody’s best interest for Greece to resume the path of economic growth and sustainability within the euro zone,” said Mr Earnest.

Monitoring the crisis

Mr Obama has spoken with French president François Hollande, German chancellor Angela Merkel and British prime minister David Cameron by phone in recent days about the crisis.

US Treasury secretary Jack Lew has taken the lead in much of the Obama administration’s monitoring of the crisis in Greece. On Tuesday, he spoke with eurogroup president, Dutch finance minister Jeroen Dijsselbloem, Italy’s finance minister Pier Carlo Padoan and French finance minister Michel Sapin, urging them to find a “pragmatic compromise” that would put Greece on a path to reform and recovery.

Mr Lew told them of the importance of “taking continued necessary steps to maintain financial stability” and that he would “stay in close touch” over the coming days, his department said.

The treasury secretary and his senior officials have also kept in regular contact with senior Greek and European officials over the situation in Greece.

In an information note released yesterday, the IMF said that the Washington-based fund’s managing director Christine Lagarde immediately informed its board when Greece missed €1.6 billion euro of loan repayments due to the organisation on Tuesday.

Technical assistance

The IMF said Greece, as a member of the fund, will remain eligible for technical assistance from the organisation on economic issues such as tax administration and financial sector policies.

Should the country continue to fall deeper into arrears to the IMF within 12 months, the fund may consider a “declaration of ineligibility” against Greece.

If non-payment persists for longer than 12 months, the IMF executive board may declare Greece “non-cooperative” in trying to clear arrears. This could trigger a suspension of voting rights and, if non-cooperation is extreme and protracted, compulsory withdrawal from the IMF, the fund said.

On Tuesday Greece became the first developed country to miss a loan repayment to the IMF, joining delinquent states such as Zimbabwe, Sudan and Somalia on a list of countries to have fallen into arrears to the fund.