Europe News

UK warns Greek debt row 'biggest risk to global economy'

Will Greece and the EU compromise?

Greece's new left-wing government has begun a charm offensive across Europe in an effort to drum up support for a new debt deal -- but failed to convince the U.K. that it poses no threat to the euro zone economy.

Greece's Finance Minister, Yanis Varoufakis, met with U.K. Treasury chief George Osborne Monday to outline how the country will renegotiate its debt burden. However Osborne left the meeting with a stark warning for the euro zone.

Osborne said that the debt dispute between the new Greek government and the euro zone was fast becoming the biggest risk to the global economy.

"We had a constructive discussion, and it is clear that the stand-off between Greece and the euro zone is the greatest risk to the global economy," Osborne told reporters after the meeting, according to Reuters.

"I urge the Greek finance minister to act responsibly but it's also important that the euro zone has a better plan for jobs and growth," Osborne said.

After meeting the U.K. Chancellor, Varoufakis is scheduled address investors and banks in London.

The finance minister's tour of Europe started Sunday when he visited France to meet the country's Finance Minister Michel Sapin.

In a press conference following the meeting, Varoufakis said Athens had to wean itself off debt and ; Greece had resembled a drug addict in recent years, he said, waiting for another dose of aid.

For his part, Sapin said that while Greece's debt to gross domestic product (GDP) ratio of 175 percent was "untenable," there was "no question of France cancelling Greece's debt."

Varoufakis will then travel to Rome on Tuesday to talk with Italian Finance Minister Pier Carlo Padoan.

British Chancellor Of The Exchequer George Osborne (right), and Greece's new finance minister Yanis Varoufakis speak during their meeting at 11 Downing Street
WPA Pool | Getty Images

The anti-austerity Greek government and its leader Alexis Tsipras are on a collision course with the country's international creditors, and have insisted that at least a third of Greece's debt be written off. Making matters worse, the Greek government announced it was scrapping the country's privatization agency on Friday.

During a visit to Cyprus on Monday, however, Tsipras said his government would would make full use of a mandate for negotiations with European partners and ruled out seeking aid from Russia, Reuters reported.

Read MoreRussia extends olive branch to Greeks

Charm offensive

Thanos Vamvakidis, head of European G10 FX strategy at BofA Merrill Lynch Global Research, told CNBC that it was "obvious" that Greece would need some kind of debt relief.

Read MoreGreek bond yields spike as Syriza scraps austerity

"Greece's debt to GDP ratio is very, very high. In order to make it sustainable, the bailout program assumes that Greece will have a primary surplus (with government income exceeding spending) of 4.5 percent of GDP and keep it there forever, but it's absolutely impossible," he told CNBC's "Squawk Box" Monday. "The only countries that have managed to do it for a decade are countries with oil."

Greece needs tax reform: Business group

Meanwhile, another market analyst called Greece's current tour of European capitals a "charm offensive," designed to put pressure on Germany to be more accommodative towards a new debt deal -- something the country has strongly resisted so far.

"Germany remains, for its part, firmly opposed to any form of debt reduction, as do the Finns, and it is these two stances that are becoming increasingly difficult to reconcile, given that Greece's debt is, to all intents and purposes, unsustainable," Michael Hewson, chief markets analyst at CMC Markets, said in a note Monday.

Despite being in power for just one week, the new Greek government has already started to reverse a number of unpopular austerity measures – such as the privatization of public assets and firing of public sector workers -- that were a condition of its bailout, overseen by the European Commission, European Central Bank and International Monetary Fund.

This is likely to have angered its creditors, and could make negotiations much tougher -- and spook investors even more. Greek stocks have plunged almost 10 percent over the last week although on Monday, the Athens stock exchange was trading up 4 percent. The yield on its 10-year government bonds is currently at 11.1 percent as concerns grow that Greece could default.

Constantine Michalos, president of the Athens Chambers of Commerce and Industry, urged caution, however, telling CNBC Monday: "We need to wait to see what the outcome of this renogotiation is going to be."

Markets concerned

A major concern among traders this week is how long it will take for Greece to agree a deal with its creditors, Naeem Aslam, chief market analyst at Ava Trade, said Monday.

"This fear among investors has wiped off nearly 40 percent off Greece's stock market value and the trend may continue if we do not see a solution any time soon," he said in a note. "Therefore, we are facing a really messy situation. Time is ticking as we move towards February 28, when Greece's credit program will expire."

Aslam warned that Greece could default by the end of the month if it did not receive another bailout funding line, as the country's banking system was relying on ECB loans to run its daily operations.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld

Correction: This article has been updated to attribute the remarks about Athens weaning itself off debt to Yanis Varoufakis.