Washington says Greek meltdown would be geopolitical mistake

By Jason Lange and Douwe Miedema

By Jason Lange and Douwe Miedema

WASHINGTON (Reuters) - The Obama administration warned Europe on Wednesday that allowing a financial and economic meltdown in Greece would be a geopolitical mistake.

U.S. Treasury Secretary Jack Lew said he has been in constant contact with European officials regarding Greece's debt crisis, which threatens to compromise Europe's monetary union and create instability in a region critical to U.S. interests.

"There's a lot of unknowns if this goes to a place that completely melts down in Greece," Lew said. If that happened, he said, "it's geopolitically a mistake."

An increasingly plausible Greek exit from the euro zone could trigger an even deeper financial and economic crisis in Greece.

European officials have said strategic interests play a role in dealing with Greece, which is a member of the U.S.-led NATO military alliance but also has ties to Russia, America's old Cold War foe.

Lew's comments were the first forceful acknowledgement from the Obama administration that it too sees a Greek exit as a geopolitical threat and not just an economic risk.

Washington has been quietly prodding Athens and its international creditors to reach a deal that sets Greece on a path to economic growth while also giving it a break on its debt. Most of Greece's debts are owed to European Governments, the European Central Bank and the International Monetary Fund.

Now Washington appears to be loosing patience, and Lew for the first time gave public advice on how Greece and its creditors could reach a deal.

He said there was "deep reluctance" by many European players over changing the terms of Greek debts to make it easier for Athens to pay, but that Europeans would need credible promises from Athens over reform.

"Those kinds of things can be coordinated. We have debates in the United States where we talk about triggers. We say 'if you do X we do Y,'" Lew said. "I hope that's where the discussion over the next few days goes. Because that's the space where I see the possibility of a resolution."

Greece appears to be "near the verge of running out of money," he said.Lew, who was speaking at an event on U.S. financial stability, also said the United States was keeping a close eye on China's stock market, which he said raises questions about how quickly China's economy will grow over the long term.

(Reporting by Jason Lange and Douwe Miedema; Editing by Bill Trott and Andrew Hay)