Investors reacted badly on Friday to the increasing fragility of the Greek coalition government.
Share prices slumped on the Athens stock exchange and the amount of interest that Greece is having to offer on its government bonds jumped to the highest level in nearly two months.
The financial markets were worried because any weakening of the coalition makes it harder for the government to pass unpopular reforms demanded by its international lenders
And it looks like those lenders are going to have to ask for more austerity measures.
The current visit by the inspectors from the European Union, the International Monetary Fund and the European Central Bank – the so-called troika – has found a 2.5 billion euro shortfall in the budget for Greece’s healthcare and pension system.
There are additional potential funding problems for the bailout due to the reluctance of some eurozone central banks to roll over their holdings of Greek government bonds.
The ongoing troika inspection visit needs to be completed as planned in July to avoid funding problems.