Reuters reported that fresh fears that Greece will have to restructure its mountain of debt, possibly as early as this summer, sent the euro and some euro zone bond prices tumbling as the bloc's debt crisis escalated.
German government sources told Reuters in Berlin that they did not believe Greece, which sealed a EUR 110 billion bailout from the EU and IMF a year ago, would make it through the summer without a restructuring.
Market confidence was also hit by a new threat to Portugal's pending bailout from the rise of an anti euro party in Finnish elections. The anti euro True Finns party scored big gains in a vote and vowed to push for changes to a Portuguese rescue by the EU that is expected to total 80 billion euros when it is finalized by a mid May 2011 deadline.
After a brief lull in the EU debt crisis at the start of 2011, it has blown up again and some analysts are now openly speculating that Greece and possibly other countries could eventually be forced to exit the bloc.
Mr Andrew Lynch, a fund manager at Schroders, told Reuters Insider that "You may see some countries deciding to leave the euro because they can't deal with the fiscal straitjacket that it imposes on them."
A restructuring of Greek debt would be the first by a west European nation in over half a century and represents a challenge for EU policymakers struggling to reconcile the interests of their citizens with the costly steps needed to preserve the integrity of the 17 nation currency area.
Greece, saddled with a debt burden that is expected to swell to 160% of gross domestic product by 2013, has denied repeatedly that it plans to restructure. Bank of Greece Governor Mr George Provopoulos warned on Monday it would have catastrophic consequences.
Mr Lorenzo Bini Smaghi ECB Executive Board member told Reuters that "You have the alternative of selling assets and accelerating privatization or going in the direction of major financial collapse, which would happen in the case of default or restructuring."
But German newspaper Die Welt quoted an unnamed Greek minister as saying it was only a matter of time before the government took such a step.
And government sources in Berlin told Reuters that some form of debt restructuring now looked unavoidable and suggested Greece move fast, rather than wait until its funding situation gets critical next year.
A high ranking German coalition source said that "Decisive voices within the federal government expect that Greece will not make it through the summer without a restructuring."
European shares sank to their lowest close in three weeks and the euro fell more than two cents to trade briefly below USD 1.42, its lowest level against the U.S. dollar in nearly two weeks as the euro zone debt crisis rattled market confidence.
European officials have been at pains to stress that Spain can avoid the contagion that has forced Greece, Ireland and Portugal to seek rescues. Its much larger economy could strain the bloc's resources to breaking point if it did succumb to the need for a debt bailout.
(Sourced from www.reuters.com)
