Greece is facing "challenging times," according to U.S. Secretary of State John Kerry, who said Washington is "confident" in Greece's ability to make economic reforms and "chart a new course."
Kerry spoke after meeting with Greek Foreign Minister Nikos Kotzias in Washington. He was referring to negotiations between Athens, the International Monetary Fund (IMF) and other creditors who are demanding repayment of loans that bailed out the Greek economy.
Greek financial officials and creditors appear stalled in efforts to reach a compromise on repaying more than $300 million in loans that come due shortly, and worried about even larger repayments in the next couple of months.
Greece’s new left-wing government won election on promises to end deeply unpopular austerity programs that have seen higher taxes and reduced public services. Austerity and economic reforms were demanded by the IMF, the European Union and other creditors in exchange for bailout loans.
While there have been some reforms, they are not complete and are making little new progress. Standard & Poor’s recently cut the nation’s credit rating on fears that Athens cannot meet its repayment schedule.
Last week, IMF Managing Director Christine Lagarde said the global lender would not give Greece more time to make its repayments, and other lenders appear unlikely to ease terms either.
U.S. Treasury Secretary Jacob Lew urged Greece to work out a comprehensive set or reforms that “merit timely financial support” from its international partners. Lew cautioned that failure would create immediate hardship for Greece and uncertainties for Europe and the global economy.
Wesleyan University professor Richard Grossman says Greece is only a small part of the European economy, but warns that defaulting on loan repayments would raise investor worries about other heavily indebted nations that are far larger. He says it could set a precedent, making it possible other nations might follow the same path, raising "a cloud" over the 19-nation eurozone.
The Greek crisis comes at a time when stock and other markets already are overextened, vulnerable and fragile, potentially amplifying the impact of any loss of investor confidence on markets far from Greece, according to Robert Blake of the investor education company FinMason.
He says the odds of a default may be as high as 30 percent, but says Greek and financial officials are searching for some kind of face-saving compromise to end the crisis.
Grossman says one idea would be to link the size and pace of Greek repayments to its economic growth, although he says any such changes seem to be difficult to negotiate at this point.