The G-7's problem: Can the world deal with a Greek default?

By Paul Gordon & Alessandro Speciale

When the world?s top finance ministers and central-bank chiefs meet in Dresden this week, they may struggle to stick to an agenda set by their German hosts that doesn?t mention Greece.

The Group of Seven meeting starting on Wednesday will officially focus on big-picture themes of economic growth, tax evasion and strengthening the global financial architecture. Yet the most pressing matter for many of the policy makers attending is whether Greece can stay in the euro, and whether the world can handle the consequences if it can?t.

Time is running out for the Mediterranean country to reach agreement with its German-led creditors over economic reforms needed to unlock bailout funds before loans from the International Monetary Fund come due next month. That?s leading non-European observers, like officials from the US Treasury, to warn of unpredictable consequences if Greece and its partners don?t manage to avert a default.

?There are no major pressing issues related to currencies or trade to be discussed,? Christian Schulz, an economist at Berenberg Bank in London, said in an interview. ?The worry on everyone?s mind will of course be Greece, and the message for Greece is going to be that it has to do what it takes to save its economy.?

Pragmatic outcome

While the G-7 doesn?t have a mandate to decide how to deal with Greece, it brings together together officials from the euro area?s three biggest economies, as well as the European Central Bank, the International Monetary Fund and the European Union -- the institutions backing the 240 billion-euro ($262 billion) aid package that expires next month.

At a former palace of Saxon princes and kings, German Finance Minister Wolfgang...