HUFFINGTON POST

U.S. Efforts In Greek Debt Crisis May Be Just Too Late

The United States should have intervened a week ago when the latest talks between Greece and its creditors began to fall apart, a former senior International Monetary Fund official told The Huffington Post on Tuesday. Appeals for compromise over the Greek debt crisis come too late now, economist Peter Doyle said.

Nonetheless, on Monday evening, U.S. Treasury Secretary Jack Lew spoke with Greek Prime Minister Alexis Tsipras and other European officials, urging them to continue negotiating a bailout deal ahead of Greece's July 5 referendum on agreeing to any such deal. Greece needs additional funds to avoid defaulting on its debts, including a 1.6 billion euro payment due to the IMF on Tuesday by 6 p.m. Washington, D.C., time. As of Tuesday afternoon, Greece had yet to make the payment and was calling for an emergency loan from eurozone nations.

In Lew’s talks with Tsipras on Monday, the Treasury secretary emphasized that any deal must include both “a commitment to reforms” by Greece and a “discussion of potential debt relief” for the country, according to a statement from the Treasury Department. By mentioning debt relief, the U.S. seemed to call for greater compromise from Greece’s creditors.

So far, the eurozone nations have offered to make available to Greece previously promised loans in exchange for fiscal tightening and other reforms, but have refused to consider actually reducing the Greek debt in the current talks. A last-minute proposal on Tuesday by the European Commission, which represents eurozone nations in the talks, suggested there could be negotiations over debt relief later in the year if Greek citizens vote yes to the proposed bailout deal on July 5.

For its part, the IMF has paid lip service to the idea of debt relief for Greece. But it has not backed that up with any such endorsement in key official documents.

Greece claims -- and many economists agree -- that it will never be able to repay the debt it now owes and that continuing to try to do so is preventing the country from recovering economically.

To really help the situation, Doyle, the former IMF senior manager, said the U.S. needed to step into the negotiations between Greece and its creditors at a crucial moment a week ago. As the largest single contributor to the IMF, the U.S. has the greatest say over its policies.

Specifically, Doyle argues that the U.S. should have stopped the creditors from sending back Greece’s latest proposal covered with redlined changes on June 24 and then leaking it to the media. The way the counterproposal was made was widely seen as humiliating to Greece. Moreover, it did not offer any new concessions on debt relief, pension reforms or increases in the value-added tax. Greece reacted furiously to the counterproposal, beginning a downward turn that culminated Saturday in Greece's withdrawal from the talks and announcement of the referendum.

“I was truly amazed that the U.S. allowed the IMF to send back to Greece that redlined document,” Doyle said. “It must have slipped through the cracks in the White House," he added. "That redlined document was completely humiliating, and it says nothing about debt relief.”

Doyle noted that “in general, the U.S. has been on the side of the angels,” pushing Europe to compromise for the sake of the eurozone’s future.

“The U.S. position has been that the Europeans are completely crazy to risk a major conflagration in Europe over something so small as Greece,” he said.

The Obama administration says that its urgent appeals were responsible for getting the eurozone nations to bail out Greece in May 2010, when the euro was in danger of collapse. Then-Treasury Secretary Timothy Geithner recalled in notes for his 2015 memoir, which were leaked last year to the Financial Times, that eurozone nations in general, and Germany in particular, resisted rescuing Greece on the grounds that it would reward the country for its fiscal irresponsibility.

“But the main thing is I remember saying to [European leaders]: ‘You can put your foot on the neck of [Greece] if that’s what you want to do,’” Geithner recounted. “‘But you’ve got to make sure that you send a countervailing signal of reassurance to Europe and the world that you’re going to hold the thing together and not let it go. [You’re] going to protect the rest of the place.’”

In the Treasury Department’s Monday statement, it again highlighted the importance to the global economy of a “sustainable” accord between Greece and its creditors. But with European economies on the mend, confidence in the euro restored, and most of Greece’s debt held by governments rather than banks, many analysts predict that the impact on global markets of a Greek default and eurozone exit would be limited. And speaking at a Tuesday press conference, President Barack Obama downplayed the financial impact of those events on the U.S. economy.

Obama called the threat of a Greek default and eurozone departure an "issue of substantial concern," but one that is "primarily of concern to Europe." He added that Americans should not be bracing themselves for a "major shock."

CORRECTION: The deadline for Greece's 1.6 billion euro payment to the IMF was misstated in an earlier version of this story. The payment is due by 6 p.m. Washington, D.C., time, on Tuesday.

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