GREEK DEBT WOES RATTLE MARKETS

 
Julian Harris
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CHAOS-HIT Greece was offered a lifeline by international lenders last night, yet the ongoing debt crisis failed to dampen the fears of contagion playing havoc with the markets.

During the day two-year Greek yields spiked to over 30 per cent, with the cost of several amounts of Greek debt hitting fresh records.

The effects were felt elsewhere in the Eurozone, as Spanish 10-year bond yields touched 5.73 per cent and Irish 10-year yields climbed to 11.6 per cent.

The Dax closed down 0.07 per cent with the French Cac dropping a heavy 0.38 per cent on the day, while the euro dropped to €1.42 against the greenback. There are also signs that private debt markets are being hit as investors become increasingly wary.

The International Monetary Fund (IMF) said it stands ready to contribute to a €12bn (£10.5bn) emergency package, along with the European Union (EU), to delay a Greek default that could otherwise come as early as next month. The deal could lead to a wider €120bn bailout for the troubled Eurozone economy.

The emergency €12bn injection is dependent on the Greek government passing its fiscal austerity proposals through parliament, the IMF insisted last night. Yet while the rescue package had been dependent on Eurozone states agreeing to meet Greece’s funding needs for the next 12 months, EU officials said it would now accept a political pledge of future funding, in order to stave off a default.

“Our response to the challenges we face is stability and to stay on our course of reforms,” Greek prime minister George Papandreou told a parliamentary caucus meeting called by critics of his austerity policies.

The political drama in Athens, where mass street protests turned violent and efforts to form a national unity government collapsed on Wednesday, rocked financial markets.

Yet the news coincided with accusations that the Treasury had snuck through a further £9.2bn contribution to the IMF. The amount would nearly double the UK’s contribution to the fund, from £10.5bn to £19.7bn, according to Conservative back-bench MP Douglas Carswell, who exposed the figures in parliament. “According to the IMF’s own board minutes, we have to pay our subscription by January next year -- in time for them to lend on to Greece, I presume,” Carswell said.

The UK contributed £1.2bn to the original bailout of Greece, while the cost of rescuing the Irish and Portugese governments has exceeded £11bn. The additional IMF contribution takes the UK’s bailout bill to £21.7bn.