Jack Lew, the US Treasury Secretary, echoes what Greece and the IMF already said: Greece’s debt must be restructure because it is not sustainable. In the past, Lew mentioned this in more vague manner. This time the wording is more direct.
It seems that the world’s most powerful country is trying to throw more of its weight into the Greek crisis, becoming nervous of the economic and geopolitical effects that a Greek exit of the euro zone could have on the United States. Can the US push Germany to accept some form of Greek debt relief?
Lew said it in a speech in the Brookings Institute as reported by Ian Talley of the Wall Street Journal.
A Grexit can affect the US in various ways, from bottom to top:
- Direct exposure to Greece, which is relatively small.
- The US is the main shareholder in the IMF, that is based in Washington. More losses in Greece would eventually reach the American taxpayer.
- Repercussions of the Grexit exit on the remaining euro-zone members. Weakness in the euro-zone economies, which could hurt the US economy.
- Greece’s geographical position: close to the Middle East and close to Russia.
The Greek crisis escalates hand in hand with the collapse of the Chinese stock market, something that also affects the US. Global economic stability is needed for the US.
Greece has submitted a fresh 3 year bailout request, but for now, it includes only general lines. We expect the full report tomorrow, and this is likely to consist of a request for debt relief.
The German public and the German government are both clearly opposed to cutting Greece some slack, especially when it can affect the German budget. However, a comprehensive agreement with restructuring could eventually yield a better outcome for the German taxpayer than a Greek exit, which would mean less payments from Greece along the line.
Can Obama convince Merkel to accept debt relief? Perhaps the US will need to put its money where its mouth is and also contribute to Greece’s bailout, and not leave the burden to the Europeans.
More: Greek crisis – all the updates in one place.
