The cost of insurance against Greece missing its debt repayments hit a record high, after political murmurings in Berlin that cast doubt over Germany’s role in any financial rescue.
Greece has to make debt repayments on May 19th, but the coffers are bare.
The country formally asked for help last week, and is currently negotiating terms for a 45-billion euro bailout with the EU, the IMF and the European Central Bank.
Vice-President of the ECB Lucas Papademos said: “It is essential that the economic programme currently being prepared (by the European Commission, the ECB and the IMF, together with the Greek authorities) specifies comprehensive fiscal measures and structural reforms that will address the root causes of Greece’s fiscal imbalances and structural weaknesses.”
The prospect of Greece becoming the first euro-zone country to default on its debt has also sparked fears of a domino effect among other shaky eurozone economies. The cost of insuring Portugal’s debt also hit a record high. And the euro weakened against the dollar.
German analyst Klaus Wübbenhorst said: “A weaker euro is good for exports to outside the euro area. On balance, we should see that Greece is a problem that can be dealt with and that has no impact on consumers’ willingness to spend.”
Greek banking shares tumbled after comments from Germany that it could still deny financial aid unless Athens does more to cut its budget deficit.
Those remarks prompted the head of the Greek Central Bank to call for deeper cuts than those already in the government’s austerity plan