Prime Minister George Papaconstantinou called meetings at the crack of dawn with advisers from the European Commission and the International Monetary Fund to draw up a three-year scheme of “austerity measures”. The talks could last two weeks and will almost certainly result in Athens collapsing into the arms of the €45bn (£39.1bn) safety net offered by the European Union and the IMF.
In another day of bruising trading, the yield on 10-year Greek bonds was ratcheted up to 8.4 per cent. Market fears over the nation’s ability to finance itself have dragged it into a vicious cycle that has seen its borrowing costs shoot up.
Athens needs to repay an €8.5bn bond maturing on 19 May. An agreement with the EU and IMF is expected the weekend before, giving the country a sliver of time to tap funding.
But City whispers suggest that even with outside help, Greece will need some form of debt restructuring package that would see bondholders forced to take on losses. Referring to measures previously taken by Latin American countries in crisis, hedge fund BlueGold Capital said lenders may have to accept a “haircut” of 30 per cent across the board.
Greece’s bailout talks began as the IMF issued a note warning a default by Athens could tip Europe into a fresh financial meltdown.
In its World Economic Outlook, the agency said: “In the near term, the main risk is that – if left unchecked – market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion.”
The next most vulnerable eurozone nations – Spain, Portugal and Ireland – all saw their credit default swap spreads widen yesterday.