Greek Prime Minister George Papandreou yesterday called for austerity measures to be implemented immediately as analysts warned Greece is speeding towards a severe credit crunch in the coming weeks.
"Now is the time for action," Mr Papandreou told opposition lawmakers in Parliament as he appealed for their support. "The dilemma is - are we going to let this country go bankrupt or are we going to react?" he added.
The remarks heightened a sense of urgency on financial markets.
Some German banks said they have decided not to buy Greek bonds, and Mr Papandreou said earlier that Greece's borrowing needs are covered only until mid-March, also calling on the EU to intervene to lower the rate at which Greece can raise funds.
The yield, or interest rate, that Greece must pay in order to sell its debt on bond markets has risen sharply in recent months because of a perceived risk of default and is now more than twice as high as Germany's.
The Greek 10-year bond yield rose to 6.669 per cent early yesterday from 6.640 per cent late on Thursday - compared to 3.106 per cent for German bonds.
Analysts at Wall Street giant Goldman Sachs said in a note that Greece faced "imminent refinancing challenges" and possible "liquidity shortages".
Greece has so far this year raised some €14 billion out of an estimated €55 billion in financing needs, the analysts said. The country also has €20 billion in debt service payments due in April and May.
"Our view for some time now has been that the government will be hard-pressed to push through this financing hump with only commercial or internal sources of funding," the bank said.
"Some external assistance may therefore ultimately be required, likely in the form of bilateral aid or loan guarantees from individual member states."
The Financial Times Deutschland meanwhile reported that several major German banks have already decided to shun Greek government bonds owing to concern over the country's financial situation.
Financial markets have become wary of Greek bonds since the country raised its 2009 public deficit estimate to 12.7 per cent of output from 3.7 per cent initially, highlighting disastrous finances and unreliable book-keeping.
On Wednesday, ratings agencies Moody's and Standard & Poor's warned of possible further downgrades, a move that could leave government bonds at a level deemed speculative and roil financial markets further.
The Wall Street Journal said the downgrade warning as well as a 24-hour general strike in Greece forced the government to delay a major bond issue due this week until next week because of turbulence on financial markets.
"The new bond deal is widely seen as a test of the Greek government's ability to raise money in the capital markets to finance its operations and retire old debt," the report said.
An unsuccessful bond issue by Greece could raise fears about sovereign debt in weaker eurozone economies, as well as increase pressure on the European Union to come up with financial aid for Greece, analysts said.
The European Union is pressing for even tougher action in the Greek programme to reduce the public deficit by four percentage points this year, Dow Jones Newswires reported, citing a senior Greek official.
"They are telling us the current measures will only cut two percentage points. They are pushing very hard for another package of around €4 billion," the government official was quoted as saying.
Luxembourg Finance Minister Luc Frieden said in an interview published yesterday that fellow eurozone states would have to step up to aid Greece if necessary in the interests of European cohesion.