European finance ministers meet today to discuss solutions to Greece’s debt crisis as markets ratchet up the pressure on the eurozone’s other indebted nations, Italy and Spain.
The group of 17 eurozone finance ministers will continue negotiating how public and private sector investors could ease Greece’s debt woes without prompting rating agencies to label the changes a default.
Germany, the Netherlands, Austria and Finland are determined that banks, insurers and other private holders of Greek government bonds should bear a chunk of the costs of a second Greek bailout, which is expected to total €110bn (£98bn) – on top of its previous €110bn bailout.
But after weeks of negotiations with bankers, there has been next to no progress on agreeing a formula acceptable to all sides.
And the market is now become risk averse on government debt on several more of the eurozone’s weaker states.
Italian government bonds and stocks fell sharply on Monday as investors cut their exposure to Italy on fears the eurozone's third-biggest economy could be sucked into the bloc's sovereign debt crisis.
The premium investors demand to hold Italian paper rather than low-risk German debt rose to a new euro lifetime high, pushing up financing costs for Italy – which has one of the highest public debts in the world – and its banks.
Spain, Ireland and now Belgium are also in the firing line and seeing their sovereign bond yields rising as investors bet they will also struggle to repay their debt.
Policymakers fear that any further delay in putting together a second Greek package could poison investor confidence in weak economies around the region.