MARKETS cranked up the pressure on Greece for the third day in a row yesterday in a perilous game of brinksmanship with its financial backers, the eurozone and the International Monetary Fund.
Betting on a default from the struggling country, investors forced the interest charge on Athens’ 10-year bonds beyond 7.5 per cent at one point – the steepest level in more than a decade.
The spread between Greek and German bonds widened to a euro lifetime record of 456 basis points before falling back slightly.
Analysts said traders were venting frustration at the lack of clarity surrounding the €30bn (£26.2bn) emergency aid package being arranged by eurozone countries including Germany and the IMF.
Michael Hewson of CMC Markets said: “What the market’s saying to Greece is ‘show me the money. Where’s this help, because we’ve been hearing about it for a month or so?’”
The tremors wiped billions of euros off the value of European equities and rippled out to affect shares on the Tokyo stockmarket. Continental banks with high exposure to Greece, such as Société Générale and Deutsche Bank, were particularly punished in the sell-off.
Jean Claude-Trichet, president of the European Central Bank, rushed out to declare that “default is not an issue for Greece” after holding eurozone interest rates at one per cent yesterday afternoon. He later told Bloomberg TV any assistance in the form of bilateral loans would be offered at market rates.
But observers said the hugely indebted nation was close to grasping for its rescue deal. Nick Kounis of Fortis Bank said: “The one – now extinguished – hope was the package would indirectly help by driving down Greek government bond yields. Instead, Europe’s gamble has failed spectacularly and the surge in yields makes it even less likely Greece will be able to get out of its fiscal black hole without a real helping hand.”
Chris Pryce, senior analyst at ratings agency Fitch, said the Greek government would soon have no choice but to publicly ask the eurozone and IMF for support. “The matter cannot be long delayed,” he said.
Athens has enough cash on its books to service loans coming up for refinancing in April, but needs to borrow €11.5bn in May. The issue of a dollar-denominated bond in around four weeks’ time will be the crunch event. Germany is certain to play a pivotal role in setting the terms of a bailout.