Greek bond delay fuels global fears

FEARS that the global economy could slip back into recession deepened yesterday as Greece pushed back a crucial bond issue because of market jitters over a possible downgrade of its sovereign credit rating.

Athens will wait until next week to tap gilt investors for up to €5bn (£4.4bn) on a 10-year bond, in what will be a make-or-break test of the struggling country’s ability to finance itself. Alarm rippled through the eurozone yesterday as Moody’s joined Standard & Poor’s in threatening to cut Greece’s credit rating within a month. The decision will hinge on the government’s austerity package to be announced next week, which is expected to set out measures to cut spending by up to €2.5bn.

In a sign of how high the stakes have risen, Germany’s debt chief yesterday warned the default of a eurozone member would bring the entire system crashing down.

News of the delayed issue will send fresh nervousness through markets as economic stormclouds gather on both sides of the Atlantic.

The Dow Jones plunged 53.13 points to 10,321 as traders fretted at a shock rise in weekly unemployment numbers to 496,000, which added to negative data on new housing sales.

Sterling hit a nine-month low against the dollar, falling two cents to $1.5253 on figures showing business investment dropped 5.8 per cent in the last quarter of 2009, stoking fears of a double-dip recession.

A group of financiers led by billionaire investor Jim Rogers warned of huge pressure on the pound as speculators looked for a way to express concerns over the crisis brewing in Greece. Rogers said: “The UK pound is on the brink of a collapse which could well herald a downturn worse than 2008/9 – an economic winter.”

The Treasury received a second blow when the European Commission revised its 2010 growth forecast for Britain down but left its predictions for the European Union unchanged. Economic commissioner Olli Rehn said the UK was isolated, with the EC’s expectation falling from 0.9 per cent GDP expansion to 0.6 per cent.

Meanwhile, Bank of England governor Mervyn King warned that failure to break up the banks could lead to an “even bigger” crisis in the future. King called for investment banking operations to be separated from savings institutions.