US Treasury's Lew and IMF's Lagarde urge EU to avoid Grexit

US Treasury secretary Jack Lew and International Monetary Fund (IMF) head Christine Lagarde on Wednesday urged European countries to grant debt relief to Greece and help the country avoid a Grexit.

Both leaders pointed out Greece needed “debt restructuring” , urging Germany to dial back its pressure on the Mediterranean nation.

“Greece is in a situation of acute crisis, which needs to be addressed seriously and promptly,” Lagarde commented.

Lew warned that a Grexit would cause hundreds of billions of dollars of economic damage around the world, urging leaders to restructure Greece's €317bn debt, assuring he knew how to do that. “But it's a lot to do in a short period of time,” he added.

Lew also lamented that Greek leaders and its European counterparts were not able to reach a deal due to “a couple of billion dollars”.

"You wouldn't usually buy hundreds of billions of risk for a couple of million dollar gap"

“For any of us who have participated in budget and fiscal policy discussions, you wouldn't usually buy hundreds of billions of risk for a couple of million dollar gap,” he added.

The US last week backed an IMF decision to release a debt sustainability analysis which showed that the policies carried out by Greek authorities since late 2014 have turned Greece´s debt load unsustainable and should the reforms asked of Athens be softened further then the country will require some of its debt to be forgiven.

Read more: Greek debt load may be unsustainable, IMF says

The Greek government on Wednesday made a formal request to the European Stability Mechanism (ESM) for a three-year bailout a few hours before its finance ministry announced the country would present a new proposal to its international creditors by Thursday.

Read more: Greece makes formal request for third bailout, to announce new proposals by Thursday.

On Wednesday, Greece extended bank holidays for the remainder of the week and maintained limits on cash withdrawals, after the country was given five days to strike a new bailout deal or be left to face a collapse in its banking sector and potentially increased pressures to exit from the Eurozone too.

"EU nations are trying to avoid what is a politically nasty pill to swallow"

CMC Markets' Jasper Lawler commented that although Greece and the IMF were "correctly" arguing [a debt restructuring] necessary for a sustainable long term solution for the country, the other EU nations led by Germany were "trying to avoid what is a politically nasty pill to swallow."

Barclays analysts said that "the heightened international financial market volatility due to the situation in Greece” could impact the recovery of the global economy.

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