By Ian Talley and Nektaria Stamouli 

ATHENS--U. S. Treasury Secretary Jacob Lew Thursday urged the Greek leadership to press ahead with promised economic reforms as Athens struggles to roll out another round of politically tough policy overhauls.

Mr. Lew and his lieutenants are trying to help broker a compromise between Greece and its European creditors still at odds over how to cut the country's suffocating mountain of debt.

Washington is eager to prevent the Greek crisis metastasizing again, especially as the global economy is buffeted by a multitude of headwinds. Anemic European growth is dragging on U.S. output. The U.K. vote to exit the European Union threatens the bloc's fate and is weighing on consumer sentiment and investment. And weak Italian banks are at risk of spreading broader contagion throughout the financial system.

Greece, the IMF and its European creditors agreed in May to a third bailout based on Athens further trimming its spending, raising taxes and liberalizing its economy. The IMF, which has lent the program credibility to help Greece's European creditors continue financing the country, said it needed a concrete debt-relief program before it coughed up more cash for Greece. Greece's fragile left-led coalition government sold the controversial policies with the promise of a substantial cut in its debt.

But that deal has yet to be struck. Debt relief is anathema in Germany, where leadership is eyeing elections next year. Participation by the IMF, which is seen as essential to secure debt relief for Greece, isn't assured.

Failure to resolve the Greek debt problem could exacerbate broader fears about the eurozone, and the U.S. sees preserving Greece's stability as vital to its economic and geopolitical interests, especially given the recent failed coup in Turkey and the regional immigration crisis.

Greece's Prime Minister Alexis Tsipras, while welcoming Mr. Lew in his office on Thursday, said, "This is the time that Greece needs solidarity more than ever from its creditors." And went on to say substantial debt relief is needed to support the economy and strengthen Greece's role as pillar of stability in this fragile region.

Earlier Mr. Lew praised efforts by Athens over the last year to tighten its budget, including through pension cuts. Those actions, U.S. officials believe, have helped restore a measure of trust with the country's European creditors and the International Monetary Fund.

"It is important as we look toward the remainder of the summer and the fall that Greece continue to implement the measures that have already been passed," Mr. Lew said after meeting with Greek Finance Minister Euclid Tsakalotos. Athens must "make headway on the next set of milestones due in October, including by following through on privatization plans and moving forward with critical financial sector reforms."

Moving ahead with the promised economic policies, including overhauls of the product and service markets, won't only spur growth and international investment, but also pave the way for upcoming debt talks, the secretary said.

"Progress on reforms is also important so that soon European leaders can begin discussing with the IMF the timing and details of debt relief," the secretary said. "Putting Greece's debt on a sustainable path is critical to Greece's long-term economic health, and I encourage all parties to be flexible to successfully conclude this fall's negotiations."

Greek officials, meanwhile, are wary of pushing through the deep-cutting measures with unemployment at 23% and the population suffering from chronic bailout fatigue after six years of dramatic belt-tightening. That is one reason why the U.S. wants Germany and Greece's other European creditors to finally agree to a concrete plan for debt relief. Failure to do that could once again stall Athens' economic overhauls, exacerbate anti-euro tensions among Greek voters and set the stage for more contentious and stability-threatening negotiations next year.

"The sooner these issues are resolved, the better," Mr. Lew said.

The U.S. is relatively agnostic about the type of debt relief Greece receives, as long as it finally puts Greece on a path toward growth and debt is made manageable. Officials are wary, however, of the IMF pressing Germany too hard for an actual cut in the value of the principal. That means further interest rate reductions and decadeslong maturity extensions appear to be the primary path to a compromise.

"The right approach is a pragmatic one that gets to a bottom line that leaves a very clear path forward that is stable and affordable and sustainable," the secretary said. "I certainly hope that the discussion over the coming months produces clarity in that regard.

Greece is bracing for another round of tough negotiations of economic overhauls for the second bailout review in the fall, which mainly includes a wide range of tough labor reforms.

Under the terms of the third rescue program, Greece has to increase its primary surplus, excluding interest, to 3.5% of gross domestic product by 2018, and maintain that over the medium term.

Mr. Tsipras said earlier this month meeting that target consistently over several years "is a joke; it's a fairy tale."

He said Athens is telling creditors the country should set a more sensible target of 1.5% to 2%, a goal the IMF says is far more pragmatic.

That, however, would require the EU to give Greece far more favorable terms on its debt, or even a write-down on the principal value of the bonds.

Write to Ian Talley at ian.talley@wsj.com and Nektaria Stamouli at nektaria.stamouli@wsj.com

(END) Dow Jones Newswires

July 21, 2016 09:05 ET (13:05 GMT)