The United States urged international creditors to show more flexibility in negotiations with Greece’s cash-strapped government to avert a possible Greek default and exit from the euro zone with incalculable consequences.
U.S. Treasury Secretary Jack Lew issued the warning on Wednesday in a stopover in London on his way to a meeting of Group of Seven finance ministers in Dresden, Germany.
“My concern is not the goodwill of the parties — I don’t think anyone wants this to blow up — but … a miscalculation could lead to a crisis that would be potentially very damaging,” Lew told students at the London School of Economics.
“The challenge for the Europeans, the political and economic institutions — the IMF — is to show enough flexibility,” he said.
Washington is the dominant shareholder in the global lender and also sees strong geopolitical grounds for keeping Greece firmly anchored to the European Union.
Finance ministers from the United States, Japan, Germany, France, Italy, Britain and Canada are meeting in Dresden on Thursday and Friday, and although Greece is not formally on the agenda, it will be discussed on the sidelines.
Greece’s government has said it does not have enough money to repay loans from the International Monetary Fund without further help from Europe.
Markets rallied strongly on Wednesday after Athens issued a statement attributed to a Greek official saying negotiators had begun drafting a staff-level agreement on a cash-for-reform deal. However EU officials dismissed the report and said the sides were still far apart on key issues.
A senior EU source said behind the scenes, the United States was leaning heavily on the IMF and on Germany to be more conciliatory towards Greece to permit a deal, if Greek Prime Minister Alexis Tsipras also makes a significant move.
But further support for Greece is unpopular with the public in many euro zone countries such as Germany, especially as the current Greek government has reversed previous reforms.