Greece’s borrowing costs are spiralling and a debt payment deadline is looming a day after a credit ratings agency downgraded the nation’s debt to junk status.
The euro dropped to a new one-year low against the dollar and stock markets in London, Lisbon, Paris, Frankfurt and Madrid all fell this morning amid fears of a widening European crisis.
Greece urgently needs money within the next three weeks, as it has 8.5bn euros worth of debt that matures on May 19.
However, the interest rate demanded by investors to hold 10-year Greek sovereign bonds has now risen to over 10% – the highest level ever recorded in the eurozone.
The term ‘junk’ describes a debt that is deemed to be high risk, and its application to Greek bonds means that big investors such as pension funds will no longer be allowed to buy the country’s debt.
The country’s economy is now rated in the same bracket as Colombia, Romania and Azerbaijan.
In Athens, further strikes and protests erupted, with news broadcasts halted after radio technicians walked out and jobseekers gathering outside the finance ministry.
Economist Koen De Leus at European financial group KBC Securities, warned: “The chances of a default by the Greek government are increasing not by the day but by the hour.
“If the IMF and European governments don’t come up with something quickly, then I see the market going down further quite rapidly.”
However, Greece’s finance minister George Papaconstantinou yesterday promised that Greece would “absolutely and without any doubt” be able to service its debt by the May deadline.
The heads of the IMF, the European Central Bank and other financial institutes are to meet with German Chancellor Angela Merkel in Berlin later today to discuss the crisis.
The Chancellor Alistair Darling called for Eurozone countries to “urgently” agree a bail-out for Greece or risk a further decline in stock market confidence.
Mr Darling said it was “absolutely essential” that Greece’s problems were sorted out “quickly, effectively and decisively”, following a torrid 24 hours for world markets.
Meanwhile the Business Secretary Lord Mandelson dismissed comparisons between the economic problems facing Greece and Britain as “frankly ridiculous”.
Markets will be watching the Berlin meeting for a positive signal following falls this morning that also saw the euro staying close to a one-year low against the dollar.
In Lisbon, the stock market plunged more than 5.7% in early trading after Standard & Poor’s, the rating agency that downgraded Greek debt, also slashed the status of Portuguese bonds.
Yesterday the Dow Jones closed down 200 points while this morning the London FTSE 100 Index of blue chip stocks opened 1% down.
Greece wants £34bn from eurozone governments and the IMF to shore up its finances but details of the package have yet to be finalised.
