The European Union yesterday urged Greece to act fast with new action on its deficit, as markets monitored conflicting signals about a rescue and fresh evidence of eurozone budget strains.
The EU's top budget enforcer said Greece should "announce additional measures in the coming days" to bring about a drastic reduction in its deficit, which is the highest in the eurozone at an estimated 12.7 per cent of output.
Austerity measures already announced by the government - including tax rises and public sector benefit cuts - have sparked anger among many ordinary Greeks.
But they have done little to reassure sceptical investors with funds which Greece needs to borrow.
In response to pressure from EU institutions and the markets, Greece has undertaken to cut its deficit by four percentage points this year.
The debt crisis is being seen as an extreme example of structural strains in other eurozone economies, such as Italy where the government said on Monday that the deficit nearly doubled to 5.3 per cent of output in 2009.
Referring to a plunge in confidence in Greece on financial markets, Mr Rehn, who is the EU's Economic and Monetary Affairs Commissioner, said: "Risks related to macroeconomic and market development are materialising."
The problem is particularly acute as Greece is planning to sell up to €5 billion of 10-year bonds this week in an issue which had to be delayed from last week because of financial market turbulence.
The government must also redeem old debt totalling about €20 billion in April and May, and also needs quickly to continue raising a total of about €55 billion to cover its public deficit this year.
Reports in Greek media said that the Socialist government might announce a new round of austerity measures tomorrow, following an audit last week by the European Union, European Central Bank and International Monetary Fund. "For the early part of this week much of the market's attention will once again be on Greece with regards to potential announcements on funding as well as additional fiscal measures," French bank Credit Agricole CIB said in a note. Barclays bank analysts noted that "any positive impact on the euro is still subject to the ebb and flow of the politics surrounding" the Greece situation.
The euro dipped to $1.3625 in late morning trading in London.
The two central players in any eventual support for Greece are seen as the IMF, which is currently advising the government on dealing with the debt and restructuring the economy, and Germany, the strongest economy in the eurozone.
But on Sunday, German Chancellor Angela Merkel ruled out financial help.
"We have a (European) treaty under which there is no possibility of paying to bail out states in difficulty," Mrs Merkel said, responding to fears among crisis-hit German taxpayers about having to bail out Greece.
"There is absolutely no question of it," she added.
A report on Friday, however, said that the German government was considering using its development bank KfW as a vehicle for financial help.
In an interview with Greek newspaper Eleftherotypia published on Sunday, the head of the Eurogroup of eurozone member states, Jean-Claude Juncker, said: "Greece must step up its efforts to limit its (annual) public deficit.
"Greece must understand that taxpayers in Germany, Belgium and Luxembourg are not prepared to correct Greek fiscal policy mistakes."