In World Economy News 29/05/2015
In the world’s most pressing financial crisis, Greece’s potential default on its debt, the U.S. has adopted a quiet, behind-the-scenes role. That’s changing.
Until recently, President Barack Obama and his top financial advisers have made few public statements on Greece’s debt crisis, which threatens to drive the country out of the euro zone. Yet this week U.S. Treasury Secretary Jacob J. Lew voiced frustration over a stalemate in the talks between Greece and its European creditors.
“It’s a mistake to think that a failure is of no consequence outside of Greece,” Lew said in a speech at the London School of Economics on Tuesday. “We don’t know the exact scope.”
U.S. officials are mindful that European leaders, who have chastised Americans for meddling in the past, consider Greece’s debt an internal matter. They also recognize that the continent is better situated to resolve the dispute than is the U.S., after Europe’s experience weathering a succession of sovereign debt crises at the end of the last decade.
Germany, Greece’s primary creditor, has said it doesn’t want the situation discussed at a meeting of the Group of Seven industrialized nations next weekend near Munich.
“The United States has been pretty heavily involved from the beginning, but most of it has been behind the scenes,” said Edwin Truman, who was assistant Treasury secretary for international affairs under former President Bill Clinton.
Rising Concern
The Treasury Department said that over the past week Lew had made two phone calls, on May 22 and May 27, to Greece’s prime minister, Alexis Tsipras, reflecting rising U.S. concern.
Greece is scheduled next month to repay about $1.7 billion in loans from the International Monetary Fund — where the U.S. is the largest shareholder — with the first payment due June 5. Plagued by unemployment and low tax revenue, the country doesn’t have the money and is negotiating with the European Central Bank, European Commission and the IMF for better terms to avoid default.
European leaders have publicly dismissed claims by Greek officials that a deal is near.
Failure to reach an agreement would drive yields higher on bonds issued by other “vulnerable” euro-area countries, the European Central Bank said Thursday. U.S. officials haven’t publicly sounded an alarm in the same way as in 2012, when Obama said that European debt crises of the time were a “cloud that’s coming over from the Atlantic.”
European Backlash
Prominent U.S. involvement in the earlier crises at times provoked a backlash. European finance ministers rebuffed then-Treasury Secretary Timothy Geithner’s entreaties to resolve their debts when he made an unusual appearance at a meeting they held in September 2011. Several openly criticized him for meddling.
The Obama administration’s leverage with key actors in the current Greek crisis is limited, and U.S. persuasiveness with European leaders has diminished as they’ve dug in on their positions, said Robert Kahn, a former IMF and U.S. Treasury official. That has dissuaded Obama from taking a more public role.
“Why make a public push and have it fall flat?” Kahn said by phone. “European views firmed up and hardened. The frustration with Greece grew over time.”
There is also less urgency than four years ago. The U.S. economy is better positioned to withstand external shocks. Europe itself has taken measures to protect its banking systems and financial institutions from risks in Greece.
Still, the Obama administration has misgivings about Europe’s approach to the standoff. There is “a lot of anxiety” within the Treasury Department that European leaders have grown overconfident and underestimate the danger of a Greek default, Kahn said.
That concern is beginning to surface.
False Confidence
“Brinksmanship is a dangerous thing when it only takes one accident,” Lew said in his London speech, his strongest public remarks yet on the negotiations. He warned European leaders against a “false sense of confidence” in maneuvers since 2012 intended to insulate their economies from Greece, such as the movement of most of the country’s debt from private financial institutions to euro-zone governments.
Lew has urged all sides to reach a deal quickly, Treasury officials said, warning that failure to do so would deepen Greece’s hardship and introduce broad uncertainty for Europe and the global economy.
The announcement of his two calls is itself a subtle way of signaling the Obama administration’s concern, Truman said.
“Has the Treasury secretary spent the same number of hours over the last six months on the telephone as Secretary Geithner did in 2010 and 2011?” Truman said. “I would be surprised if he hasn’t spent a lot of time on it.”
Greece’s benchmark Athens Stock Exchange closed down 1.7 percent on Thursday. It is impossible to know whether the June 5 deadline for the country’s first IMF payment marks the date at which Greece would default, because no one outside Athens knows exactly how much cash the government has on hand.
