As world leaders wrapped up the G7 summit in Germany they became increasingly strident in their warnings to the Greek government, with German Chancellor Angela Merkel bluntly warning that time is running out of the troubled nation wishes to avoid defaulting on its debts.
“I can only say: every day counts now to complete the necessary work,” she said, according to wire service reports. “One must work with all intensity.”
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U.S. President Barack Obama called on both Greece and the European countries and institutions that are its primary creditors to demonstrate flexibility and willingness to find a deal.
“What it’s going to require is Greece being serious about making some important reforms, not only to satisfy creditors, but more importantly, to create a platform whereby the Greek economy can start growing again,” Obama said. “Greece is going to have to make some tough political choices.”
The comments came as depositors continue to withdraw money from Greek banks, whose reserves are dwindling, and a day after European Commission president Jean-Claude Juncker, seen as more accommodating than many of the EU’s member countries, blasted Greek Prime Minister Alexis Tsipras in an angry public speech.
Juncker accused Tspiras of misrepresenting his government’s discussions with the EU to the Greek parliament. Further, he said Tspiras has not been a reliable negotiating partner, failing to deliver what he promises.
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“Alexis Tsipras promised that by Thursday evening he would present a second proposal. Then he said he would present it on Friday. And then he said he would call on Saturday. But I have never received that proposal, so I hope I will receive it soon. I would like to have that Greek proposal,” he said.
Greece is small, both in terms of population and economic output, compared to the rest of the EU. However, a debt default could have outsized consequences extending well beyond Athens. The European economy is already sputtering, and a Greek default, combined with the almost inevitable political crisis that would follow, would almost certainly make matters worse, with repercussions that would inevitably cross the Atlantic.
For example, Michael Hicks, an economics professor at Ball State University and economics and director of the Center for Business and Economic Research there, tried to put the issue in perspective just for the state of Indiana.
“Even a mild European recession will have repercussions here. About 2.5 percent of Indiana’s GDP is exported to the rich nations in Europe. That means perhaps 75,000 direct jobs linked to the manufacture and transport of these goods and another 45,000 indirectly across the state. A meaningful downturn affecting northern Europe will cost tens of thousands of Hoosiers their jobs. What happens in Greece will impact us, and so we ought to care about the economics of a debt restructuring.”
The Massachusetts Institute of technology’s Observatory of Economic Complexity says that more than 20 percent of total U.S. exports flow to Europe, meaning that a further slowdown there will have real consequences here.
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