Obama warns against US overreaction to Greek crisis

President doesn’t see ‘major shock’ in crisis but is concerned about effect on Europe

Barack Obama: “so far I think so far the markets have properly factored in the risks involved”. Saul Loeb/AFP/Getty Images.

Barack Obama: “so far I think so far the markets have properly factored in the risks involved”. Saul Loeb/AFP/Getty Images.

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President Barack Obama has said the US administration was taking the Greek debt crisis seriously but warned against overreactions at home, saying that it was primarily an issue of concern to Europe.

Speaking at a joint news conference with Brazilian president Dilma Rousseff, Mr Obama said that his administration, in particular treasury secretary Jack Lew, was closely monitoring developments with Greece and wanted to see negotiations resume to find a resolution.

“Essentially what you have here is a country that has gone through some very difficult economic times, needs to find a path towards growth and a path to stay in the euro zone,” said Mr Obama.

Resolution

“What we have been encouraging both the Greek government and our European partners to do is to continue to negotiate and find a pathway towards a resolution.”

Mr Obama was speaking shortly after Greece proposed a new bailout deal from Europe, just hours before it was scheduled to miss the repayment of €1.6 billion in loans to the International Monetary Fund.

“I have spoken to my European counterparts to encourage them to find a path towards resolution,” the president said.

“It is something that we take seriously but it is not something that should prompt overreactions and so far I think so far the markets have properly factored in the risks involved.”

It was important to plan for any contingency and to work with the European Central Bank and other institutions to ensure “that some of the bumps that may occur in the financial markets – and those that have already occurred – are smoothed out,” he said.

He didn’t believe that the crisis would cause “a major shock”, but said it was “very painful” for the Greek people and could affect major export markets and growth rates in Europe, leading to a dampening effect on the world economy.

Mr Obama spoke to French president François Hollande and German chancellor Angela Merkel in recent days after the left-wing Syriza government in Athens refused tougher conditions tied to another bailout and instead closed its banks and called a referendum for Sunday on the proposals, derailing talks with euro-zone ministers.

Missed repayment

Greece was yesterday preparing to fall into arrears with the IMF with the missed repayment of the loans at the expiry of the country’s bailout programme last night. This would block Athens from drawing any further financial support from the Washington-based organisation.

The missed repayment is not being deemed a default as the major credit-rating agencies do not regard the IMF as being on par with a bond investor or financial market creditor that would trigger a wave of other loans owed by the country being called in by lenders.

Paul Blustein, a fellow at Washington think tank the Brookings Institution, said that despite mistakes made by the IMF on the Greek crisis, he expected the fund to help Athens with the economic fallout if it was forced to leave the euro zone and reintroduce the drachma.

“If things really go pear- shaped, they will in good faith provide the best technical support they can and help them handle an incredibly difficult situation, like what Argentina went through in 2002,” he said.

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