Greece's debt crisis hit the euro on Tuesday on deep confusion over Greek strategy for borrowing and towards an IMF-European Union safety net, a scheme which has caused enormous strains within the EU.
The new wave of angst came ahead of the expected arrival in Athens on Wednesday of International Monetary Fund experts, and amid ever-rising urgency for Greece to borrow huge sums to pay its bills.
Although Greek sources insisted that the IMF mission was merely to offer advice on managing its debt-crippled budget, there was mounting unease in financial markets about Greece's chances of escaping partial default on old debt due for repayment.
The sense that Greece might be losing interest in a joint but vague and conditional IMF-EU bailout strengthened on a report that Athens would soon lead a "roadshow" to raise money in the United States in the face of weakening European demand for its debt.
Greece, a member of the eurozone, said last week it planned a huge operation to borrow in dollars the equivalent of 11.5 billion euros (15.6 billion dollars) to meet an urgent need for funds.
The goal would be to raise the money by May to cover bills until the end of that month, the state debt management office said. But the country will still need another 32.5 billion euros to pay its bills to the end of the year, and faces paying about 15 percent of tax income in interest.
The Financial Times reported on Tuesday that Greek Finance Minister George Papaconstantinou would take his case to the
United States later this month rather than to Asia as had been planned.
"Greece is looking to diversify its investor base with this (US) issue, which means attracting emerging market funds as
well as other investors," the FT quoted a Greek official as saying.
Traders were therefore wrestling with at least three conflicting impressions of latest Greek thinking:
- That it will push ahead with an issue in dollars, even though the euro has fallen and rates have risen since last week.
- That Greece, having taken tension in the EU to new heights by threatening to ask the IMF for help, was now backing away from such a route because of IMF conditions.
- That Greece was trying to obtain changes to the EU-IMF safety net, or was at least trying to find out the conditions and interest rate attached;
- That Greece is not seeking any such revision.
A senior Greek government official told Dow Jones Newswires that the country was seeking greater clarity on how the EU-IMF scheme would operate but had no intention of bypassing the IMF.
"Don't expect at this point any major push by Athens to get the IMF out of the picture," he said.
Recalling that it was Greece itself that had first raised the prospect of IMF involvement, he added: "I don't think the Greek government will or can renegotiate the package. It will show inconsistency."
But with Greek intentions in question, the euro fell against the dollar Tuesday, sliding to 1.3415 dollars from 1.3485 in New York late on Monday.
Last month, the European Union agreed to offer Greece emergency rescue loans but only in combination with the International Monetary Fund.
But the scheme, tortuously stitched together and vaguely presented, has not reduced the rate Greece must offer to borrow funds. The rate for 10-year bonds rose sharply on Tuesday to 6.639 percent from 6.529 on Thursday before the Ester break.
"The media have reported that Greece, concerned about the stringent measures likely to be enforced upon them by the IMF, are trying to bypass IMF involvement in their support package, increasing uncertainty," said Credit Agricole CIB analyst Stuart Bennett.
He said euro market sentiment had also been dented by "continued disagreement amongst European leaders about the rates that Greece should be charged for any help."
The pressure on Greece is becoming critical because it has to redeem old debt totalling about 20 billion euros by the end of May, and the government has warned that some pension payments are not currently funded from June.
The debt drama, coupled with threats by Prime Minister George Papandreou to ask the IMF for help if the EU did not offer support, have placed ominous news pressures on the EU and eurozone.
Germany in particular is strongly reluctant to offer help, saying that high Greek borrowing costs alone would not be a reason to enact the safety net and that the only justification would be a threat to stability to the eurozone.
Among the constraints on German Chancellor Angela Merkel are hostile public opinion, and rulings by the constitutional
court that German participation in the eurozone must provide the same stability for Germany as it had before joining the zone.
The IMF experts arriving on Wednesday are coming at the request of the government to give advice on how to manage its budget in line with draconian cutbacks promised to the European Union.
They will also advise on how to combat tax fraud, widely considered to be an endemic and crippling problem for Greece.