Europe Economy

Greece's 'fantasy politics' ringing alarm bells

U.K. Labour Party politician and contender for the leadership of the party, Liz Kendall, has attacked the Greek government, which has so far failed to reach a compromise with creditors, comparing their methods to "fantasy".

Kendall, who is up against three other Labour politicians in a fight to win leadership of the party, which suffered a bruising defeat in the U.K. general election, said the situation with Greece posed a "historic moment for Europe".

Read MoreUK slashes welfare spending, corporation tax in budget

Greek Prime Minister Alexis Tsipras is seen on a television monitor while addressing the nation in Athens, Greece July 1, 2015.
ERT | Pool | Reuters

"Progressive social democratic parties have to find a credible alternative to the ever-continuing austerity which sees people suffer and the fantasy politics of (Greece's) Syriza and (Spain's) Podemos on the other. And that is just as much a challenge I believe for the U.K. Labour Party as it is for our sister parties right across Europe," Kendall said at a CNBC event in London.

Kendall warned that without a deal, Greece ran the risk of plunging further into economics crisis due to "extremism" and that a potential partnership with Russia was also cause for concern.

Read MoreGreek 'concrete' proposals: Tax hikes and pension reforms?

"We have Russia waiting in the wings. If support can't be found for Greece, I have no doubt that Russia may be keen to step in in exchange for who knows what," she said.

Clodagh Kilcoyne | Getty Images

"Politics abhors a vacuum and if you don't have a credible alternative that can deliver, then you allow extremists from left or the right," she added.

Kendall is one of four contenders for the leadership of her party, the other three being Yvette Cooper, Andy Burnham, and Jeremy Corbyn. The new leader is set to be announced in September after a vote.

Kendall has pushed a more business-friendly agenda in the contest and has generally been seen as a more centrist candidate who was critical of Labour's approach on the economy in the general election campaign.

"If you aren't trusted on the public finances, you won't be hard on anything else," she added.

Follow us on Twitter: @CNBCWorld