Greek borrowing rate shoots above nine per cent despite appeal for help

The price Greece must pay to borrow fresh funds on financial markets shot above nine per cent yesterday, despite an appeal by Athens on Friday for EU-IMF help to avert partial default.

Analysts said the interest rate, or yield on Greek bonds, and by ricochet on borrowing rates for some other eurozone countries considered at risk from contagion, reflected uncertainty about how the rescue would work and if it would be enough.

The rate on Greek 10-year debt reached 9.116 per cent, in a leap from 8.680 per cent on Friday when Greece made a dramatic appeal for activation of an EU-IMF liferaft, which had been put together in the hope that it would not be needed.

The new rate is highest for Greece since the country joined the eurozone in 2001. The previous record was 8.950 per cent early on Friday, shortly before Greece abandoned efforts to stand alone, and asked for help.

The difference between the rate Greece must pay for 10-year funds and what eurozone benchmark Germany must pay widened to 6.07 percentage points from 5.61 late on Friday. This is the widest spread for Greece since 1997, shortly before the overall future eurozone project began to gain significant credibility on financial markets.

Yesterday, the rate Greece must pay to borrow for two years rose above 12 per cent, reflecting what analysts said was deep concern about the short-term solvency of Greece and its ability to cut its annual public deficit dramatically by four percentage points of output this year, as imposed by the European Union.

Dealers said hardline comments from Berlin on the tough conditions that will be set for any aid deal, and continuing delay in specific terms, caused uncertainty which raised pressure on Greek debt - which in turn only makes Greece's problems more difficult still to solve. At the same time, concerns that contagion from the crisis could spread to other members of the 16-nation eurozone such as Ireland, Portugal and Spain is putting pressure on their government bonds.

On Friday, after months of uncertainty, Athens called on the European Union and the IMF to activate a rescue deal worth about €45 billion at about five per cent in a first year.

The Greek issue dominated weekend IMF and Group of 20 meetings in Washington, with officials trying to nail down the details well before May 19 when some €8.5 billion of Greek debt falls due.

Analyst Padhraic Garvey at ING said that the prospect of Greece having eventually to restructure its debt - meaning holders of its bonds will lose money - cannot be ruled out.

"For the (debt) restructuring idea to go away, the market has got to play ball and facilitate a fall in Greek yields," Mr Garvey said.

"The higher that Greek yields go the bigger is the hole that Greece finds itself in and that is why investors are fearing the worst," he added.

Greek officials insisted over the weekend that there was absolutely no question of Athens seeking to restructure its debt.

The rate on Portugal's 10-year government bond rose to 4.958 per cent yesterday from 4.893 per cent on Friday. The yield on Spanish bonds rose 4.017 per cent, and on Irish 10-year debt to 4.815 per cent. At BNP Paribas bank in Paris, ana lysts said: "It is clear that near-term doubts will remain on the ability of Greece to exit the crisis via only drawing the EU-IMF assistance plan.

"In addition, ratings agencies could decide further downgrade even if an agreement on a financial support is reached.