Greece has moved closer to securing emergency funding before debt payments become due in mid May as finance minister George Papaconstantinou warned investors they will "lose their shirts" if they bet that the nation will default.
The euro stabilized in the Asian forex market early this morning after the Greek finance minister said yesterday the aid would arrive in time to avert what would be the euro zone's first sovereign debt default, although there are increasing indications that the 45 billion euro rescue package may not be large enough.
The euro was steady at around $1.3375 after a short-covering rebound on Friday. It fell as far as $1.3201 in the previous session, its lowest since April 2009, but it recovered as Greece sought to activate the financial aid package. Against the yen, the euro edged up 0.2% to 126.00 yen, having risen 1% on Friday.
Greece has 8.5 billion euro's worth of bonds maturing on the 19th of May so any delay in receiving financial aid could trigger another sell off of assets and hurt global markets. Greece's debt which totals 115% of GDP as well as a budget deficit of almost 14% has led to major concerns among investors.
The debt crisis has dominated the agenda at the weekends G-20 meetings in Washington. Canadian Finance Minister Jim Flaherty told reporters that some in the G-20 worry the plan now being crafted is "not enough" and want to ensure any rescue is a "one-time event."
"Greece has eclipsed everything," said Sophia Drossos, co-head of global foreign-exchange strategy at Morgan Stanley in New York. "It's a fluid and fast-moving situation that has captured the attention of markets not least because it has the potential to be a systemic threat."
Even as Greece draws close to receiving the aid markets are still signaling concern Greece's fiscal woes may not be over as the country tries to bring its deficit back underneath the EU's 3% limit by 2012. A recovery in Greek bonds yields fizzled out last Friday after the government's request for support, pushing the yield on the two-year bond to 10.23% after it dropped to 9.63%. This is almost triple the rate on an equivalent German bond.
There is still strong opposition to the aid in Germany. The German finance minister said over the weekend that any loan depended "entirely on whether Greece continues in the coming years with the strict savings course it has launched". Germany's government must pass legislation before the aid can be made available. Italian Finance Minister Giulio Tremonti warned Germany against dragging its feet, saying "if your neighbor's house catches fire, it's not to your advantage to sit back."
However, Mr. Papaconstantinou said he believed Germany would agree to help: "They are completely on board on the need for a framework of conditionality and fully supportive of a decision that Germany has co-signed at the level of heads of state and government and at the Euro group level." He also said bridge loans may be possible if all countries cannot reach agreement in time. He promised to meet all obligations, and suggested his country could raise funds by embarking on a privatization program.
European Central Bank officials in Washington played down speculation that Greece's woes could spill over to other indebted EU member states. "There is no economic cause for a contagion discussion," ECB Governing Council member Ewald Nowotny said in an interview.
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