US faces Europe in disarray at G7 summit

Before setting off for Thursday's G7 summit in Dresden, US Treasury Secretary Jack Lew warned Europe against 'brinkmanship' with Greece, expressing concern that a single miscalculation could lead to a crisis with unpredictable consequences for the global economy.

"The challenge for the Europeans, the political and economic institutions - the IMF - is to show enough flexibility," Lew said at the London School of Economics on Wednesday.

"So if the Greeks are prepared to take the kinds of tough steps that they need to take, they find a pathway to resolving this without there being an unnecessary crisis," he continued.

Greece must pay 300 million euros ($327 million) to the International Monetary Fund by June 5th. But its current bailout program expires before then, and Athens doesn't have the cash to make the payment on its own.

The European Union, European Central Bank, and the IMF have conditioned financial relief on Greece's leftist government implementing deep cuts in public sector employment and pensions. But Greek Prime Minister Alexander Tsipras campaigned on a promise of ending crippling austerity measures.

Tsipras has expressed optimism that his government will finally reach a compromise with Greece's creditors after months of talks. But Brussels officials have been more reserved in their outlook. And Germany, the eurozone's economic bulwark, has been firm in its view that Athens must adhere to the conditions of the bailout.

“The US is worried about a re-eruption of an immediate crisis and of course everybody in Europe is as well,” Peter Sparding, an expert on transatlantic economic relations at the German Marshall Fund, told DW.

“But there is a second worry that the Germans definitely have,” Sparding said. “It's a long-term view about getting this right so that there are no long-term consequences.”

Geopolitics of Greek default

If Greece and its creditors miscalculate and prove unable to reach a deal this month, Athens will likely default on its debt obligations. A default could force the country out of the eurozone altogether.

“Nobody knows how the markets would react to this,” Sparding said. “The eurozone so far has been conceived of as a permanent currency union, so if a member of that currency union now can leave, that might change the view on the whole setup.”

At a time when the EU and US are virtually in a state of cold war with Russia over Ukraine, a Greek exit from the eurozone could have geopolitical repercussions. There are already been signs that Moscow is preparing to step in should the EU miscalculate.

Greek Prime Minister Tsipras met with Russian President Vladimir Putin in Moscow last April. The Kremlin subsequently offered financial aid to Athens in an attempt to win its support for a pipeline that would carry Russian gas through Greece to European markets.

Russian overtures

Most recently, Russia invited Greece to join the new development bank created by an elite club of emerging economies known as the BRICS: Brazil, Russia, India, China and South Africa. So far, Athens has not accepted any of Russia's offers.

“I don't think there's really a concern that Russia would step in and be the new source of finance because that's beyond its capabilities,” Sparding said. “But certainly, if you've seen Russian behavior over the last year, there have been attempts to drive a wedge between the European partners and also the transatlantic alliance, so far unsuccessfully.”

Greece has been critical of the West's policy toward Russia since the conflict in Ukraine erupted. Last January, Athens nearly torpedoed European efforts to impose additional sanctions against Moscow. Under pressure, Greece eventually came around, providing the unanimous support needed under the EU's unanimous decision-making process to impose punitive measures.

Managed crisis in Ukraine

Washington has faced its own obstacles convincing the EU to support more severe sanctions against Russia. Berlin has expressed concern that if sanctions go too far, the resulting destabilization in Russia could have a boomerang effect on the EU.

Though there's a shaky ceasefire in Ukraine, Washington hawks are lobbying the Obama administration to provide lethal weapons to Kyiv. The US is already training Ukrainian troops for the fight against pro-Russian separatists. But the German government adamantly opposes Western military involvement in the Ukraine crisis.

“Since Merkel visited Washington in early February, there has been a compromise to try to manage the situation at the moment with the means available at the moment, which means not yet sending lethal weapons to Ukraine,” Cornelius Adebahr, an expert on US-EU relations with Carnegie Europe, told DW.

Threat of a British exit

Adding another unpredictable variable to the political uncertainty in Europe, David Cameron's Conservatives won a decisive victory in the UK's general elections, all but ensuring that there will be a referendum in 2017 on Britain's membership in the EU.

“The Americans will be very careful about getting too involved in this debate for the simple fear of producing a backlash in British public opinion,” Adebahr said. “They want to see Britain within the European Union, that's one of the main interests they have in Britain other than the defense alliance.”

If the US can no longer rely on Britain as a bridge to Europe, Washington's influence in Brussels will likely diminish. As an outside power, the US already faces limits to what it can achieve on the continent. The main problem is a crisis of confidence within the EU, according to Adebahr.

“The magnetism of the European project has faded,” he said. “For EU citizens it's less clear what this project is about, why it's worth fighting for when it comes to opponents like Russia with a totally different view of society.”