A Greek Drama Draws In the Obama Administration, Again 

President Barack Obama and his team may be suffering from Greek financial-crisis déjà vu.

In 2010, and again in 2012, Mr. Obama and top officials in his administration worried that Greece’s debt woes could fracture the eurozone, knock down an already weak global economy and restrain a U.S. expansion. They urged European leaders to move aggressively to prevent a collapse of the Greek economy.

They’re back to the same playbook, just with some different players this time.

Mr. Obama’s top finance officials spent recent days ratcheting up pressure on Greece and its eurozone creditors to settle a standoff over an emergency bailout for the debt-beleaguered country.

“We’ve been clear to require a constructive and pragmatic way forward,” a senior U.S. Treasury official said Thursday after a flurry of calls with European finance ministers and their deputies.

“It’s going to require some compromise on all sides,” the official said. “It’s going to require somewhat toning down of the rhetoric.”

U.S. Treasury Secretary Jacob Lew and his top lieutenants pressed the issue with ministers and their deputies from the European Commission, Greece, Germany, France and other key parties this week as the acrimonious bailout talks barely grind ahead across the Atlantic.

It’s another round of eurozone-crisis diplomacy in which the U.S. has little power apart from urging its allies to come together and encouraging the International Monetary Fund to press eurozone officials as well.

The U.S. officials exhorted Greece to move ahead with economic overhauls that would put the country’s finances back in the black and revive growth.

They’ve also sent subtle warnings to Greece’s eurozone creditors about pushing the new Athens government too hard, fearing such a strategy might fuel market volatility and raise the risk of the country leaving the eurozone.

Earlier Thursday, Germany rejected a request by Athens to extend the government’s current bailout program, saying Greece sought a bridge loan without offering enough commitments to cut spending, raise taxes and restructure the economy.

U.S. officials are increasingly anxious that the Greek crisis could tilt the eurozone back into the recession for the third time since the global crisis began, a fate that could weigh heavily on the strengthening U.S. recovery. They’re also concerned it could fracture the currency union, which could send far more damaging shock waves around the global economy.

Asked if the U.S. has a contingency plan if the Greece exits the eurozone, the senior Treasury official said, “It’s imperative that a constructive way forward be found.”

“If the talks break down…Greece will feel the economic effects immediately and it will be an increase in the uncertainty facing the euro area and the global economy,” the official said.

Last week, Mr. Lew warned his European counterparts at a gathering of finance ministers in Turkey against “the kind of resolution that would end up leaving Greece in a place that is unstable or the E.U. in a place that is unstable.”

Mr. Lew at the time said he saw the potential for a “pragmatic approach in which the parties can agree on terms that are mutually agreeable.”

Ostensibly, that would require the Greece to meet many of the economic and budget overhauls required under the current joint bailout program with the eurozone and the IMF.

“Further structural reforms are needed to allow its economy to compete successfully in Europe and internationally,” Nathan Sheets, U.S. Treasury Under Secretary for International Affairs said earlier Thursday at a public event.

But Mr. Lew’s envisioned solution would also likely mean toning down near-term budget belt-tightening and Athens’ eurozone creditors living up to previous commitments to give Greece debt relief, helping to cut the ratio of debt-to-gross domestic product from over 170% now to well below 110% by 2022.

Earlier this month, Mr. Obama expressed sympathy for the new Greek government as it sought to roll back the tough bailout program.

“You cannot keep on squeezing countries that are in the midst of a depression,” Mr. Obama said.

The eurozone’s banking system is less exposed to fallout from Greece’s crisis than in 2010 and 2012.

But Europe’s weak economy is still highly vulnerable to the country’s economic woes. When the Greek electorate earlier this year voted into power a party whose leaders said they would reject the eurozone and IMF bailout, investors feared Athens could lead the country into an exit from the eurozone.

If that happened, economists said it could empower similar political movements in other eurozone countries with weak economies. The risk alone could raise borrowing costs, spook markets and maim already anemic eurozone growth.

A eurozone contraction would then cause trouble for the U.S., China and other major trade partners as demand deflated.

That’s why U.S. Federal Reserve officials noted the Greek crisis as one of the risks to its economic outlook and why Obama administration officials are pressing for a quick solution.

“Time is of the essence,” Mr. Lew warned Greece’s finance minister Yanis Varoufakis in a call Wednesday, according to a Treasury readout. “Failure to reach an agreement would lead to immediate hardship in Greece…(and) uncertainty is not good for Europe,” Treasury said.

 

Source: WSJ – A Greek Drama Draws In the Obama Administration, Again

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