As interest rates on Greek debt spiral upward, the question facing Europe is no longer whether Athens has the political will to cut spending and raise taxes to curb its gaping budget deficit, but whether Greece will run out of money before it gets the chance to do so.
With the rate on 10-year Greek bonds reaching 7.5 per cent on Thursday, the cost of insuring against a Greek default hit record high. The message from the market could not be clearer: communiqués from Brussels will no longer suffice. Analysts said, Greece needs a bailout from Europe, and fast.
But with European officials consumed with a debate over whether loans to Greece should be offered at rates consistent with a typical International Monetary Fund bailout or punitive ones closer to current market levels, the risk is that while Brussels fiddles, Greece is burning.
European Central Bank President Jean-Claude Trichet sought to break the fever in the markets on Thursday by saying that the aid programme proposed by the International Monetary Fund and the European Union was a “very very serious commitment.” This helped bring yields on 10-year Greek government bonds down from their peak for the day, to 7.35 per cent
“Time is running out,” said an official in the Greek government. “The market is testing Europe’s resolve.”