World Economy

'Grexit' Fear Looms in G7 Talks

'Grexit' Fear Looms in G7 Talks'Grexit' Fear Looms in G7 Talks

Greece's fate in the euro area continued to cast a shadow over the second and final day of a Group of Seven finance ministers meeting in Dresden Friday with still no sign of a deal in sight.

The governor of the Bank of Japan Haruhiko Kuroda – who is attending the meeting – warned of the consequences of a possible "Grexit" or Greek exit from the euro, AFP reported.

"If for the first time a country leaves the eurozone, then it won't be the same stable monetary union as before," Kuroda told the business daily Handelsblatt.

In fact, the euro area would then simply resemble a system of fixed exchange rates and such systems had never proven particularly successful in the past, the central bank chief said.

Nevertheless, Kuroda said he did not believe there would be any contagion effects "in the short term if Greece defaults or even leaves monetary union." That would be "manageable," he said.

While Greece is not officially on the agenda of the Dresden meeting – which is preparing for a wider summit of G7 leaders starting on June 7 – the issue was at the top of everyone's minds.

  Potential 'Grexit' 

International Monetary Fund chief Christine Lagarde caused a flurry when she said in a newspaper interview on the sidelines of the meeting that a Grexit scenario was "a potential."

But the IMF subsequently scrambled to clarify her comments by saying Lagarde hoped it was a scenario "the Europeans will not have to face because hopefully they will find a path to agree with the future of Greece within the eurozone."

Athens' coffers are empty and the Greek government under Prime Minister Alexis Tsipras has said it has "no money" to make a series of repayments to the IMF that are due beginning June 5, totalling 1.6 billion euros ($1.75 billion). Athens is negotiating to unlock some 7.2 billion euros in bailout cash with creditors – the IMF, the European Union and the European Central Bank.

While Greece is hopeful it could reach a deal by Sunday, its creditors are more sceptical. The EU Commissioner for Economic and Monetary Affairs, Pierre Moscovici, said on Thursday that a deal was "possible" but a great deal of work still needed to be done. Greek Finance Minister Yanis Varoufakis told radio station VimaFM in Athens on Friday that a deal was close.

  Range of Topics

The official topics on the agenda of the Dresden meeting range from the state of the global economy, to financial regulation, fighting tax evasion and ways of starving jihadist groups like the Islamic State of funding. On Thursday, there was a "great deal of discussion" about the current weakness of global growth and how that should be redressed, participants said.

Ahead of the final news conference on Friday afternoon, there were to be working sessions on other issues such as Ukraine and its financial situation, or possible aid to Nepal in the wake of the catastrophic earthquake there. Another possible topic could also be Britain's future within the EU as the re-elected conservative government under David Cameron will hold a referendum on the matter by 2017.

Time Pressing

Washington has warned against complacency, saying few expected the scale of the crisis triggered by the bankruptcy of investment bank Lehman Brothers in 2008.

G7 sources said officials from the member countries — hosts Germany, the United States, Japan, Britain, France, Italy and Canada — were speaking “all the time” about Greece on the sidelines of the Dresden meeting. Greece said on Wednesday it was starting to draft a deal with creditors that would pave the way for fresh aid but European officials denied that kind of progress had been made.

A top EU official said on Thursday that talks had to continue day and night, with a June 5 deadline approaching for Greece to pay back 300 million euros to the IMF.