Standard and Poor's decision to slash Greece's credit rating to "junk" status sparks a frantic race for desperately needed emergency loans to avoid a default on the country's spiralling debt.
AFP - Greece raced Wednesday to secure desperately-needed emergency loans to avoid a debt default after its credit rating was condemned to "junk" status causing European financial markets to reel.
The euro dropped against the dollar and stocks and bonds plunged, with investor fears spreading to other weak euro area economies such as Portugal and Spain in what analysts said showed "contagion" from the Greek crisis.
Greek Finance Minister George Papaconstantinou attacked Europe for dragging its feet over the aid and warned that Greece faced a "crucial" May 19 deadline when it has to pay back nine billion euros (12 billion dollars) in debts.
"Given our inability to access the markets, by (May 19) the procedure must be complete, agreed, signed and the release of funds initiated from the IMF and our European peers," Papaconstantinou told lawmakers in Athens.
Despite earlier hesitation, Germany signalled it was ready to step in.
"We now have to realise and implement the rescue plan... and thus send a clear signal that we will not let Greece fall," German Finance Minister Wolfgang Schaeuble said in an interview with Handelsblatt due out Wednesday.
"We are putting on pressure for quick decisions," he said.
The Greek finance ministry also lashed out at a downgrade of Greece's credit rating by Standard & Poor's, which means certain categories of investors such as pension funds will no longer be allowed to buy the eurozone nation's bonds.
The move "does not correspond with the real data," it said.
With the clock ticking, leaders of Greece's 15 euro currency partners are now planning a summit on May 10 in a bid to agree on 30 billion euros of rescue loans, a source close to the Spanish EU presidency told AFP.
The leaders will meet in person in Brussels -- the day after a key German regional election seen as a significant obstacle for Chancellor Angela Merkel.
Schaeuble said the German government could approve the plan as early as this Monday, after which parliament would have to vote on it.
Germany would be the biggest contributor to the bailout under plans drawn up earlier, with its portion rising to some 8.4 billion euros.
German public opinion is deeply opposed to the Greek bailout.
The head of the International Monetary Fund, Dominique Strauss-Kahn, meanwhile warned that Greece faces an "untenable situation" if it does not get help to remain solvent, according to the French daily La Tribune.
"I am not saying that if we help them it will be easy. It will be difficult. The Greeks have to be aware that sorting out their public accounts, after several years of reckless overspending, will be painful and difficult.
"But there is no other solution," Strauss-Kahn said.
European Central Bank chief Jean-Claude Trichet, however, ruled out a debt default by Greece or any other eurozone country, saying such a development was "out of the question" despite the state of alarm on financial markets.
The euro, which has been rocked for months by the Greek drama, plunged again on Tuesday, falling to 1.3250 dollars in late trading in London from 1.3378 dollars a day earlier and to 123.46 yen from 125.72 yen on Monday.
The London stock market dived 2.61 percent, the Frankfurt DAX sank 2.73 percent and the CAC 40 in Paris plunged by 3.82 percent. The Lisbon stock market plunged by 5.36 percent and Athens nosedived six percent.
The yield on benchmark Greek 10-year government bonds -- the rate which Greece must pay to borrow fresh funds on financial markets -- jumped to a record 9.73 percent, its highest level since Greece joined the eurozone.
An Italian bond issue also failed to garner strong support, Spanish stocks dropped by 4.19 percent and Portugal was slapped with a credit ranking downgrade by Standard & Poor's, raising investor alarm even further.
"There is a contagion effect from Greece," said Estefania Ponte, head of the economy and strategy department at BNP Paribas Fortis in Madrid.
"Greece, Portugal and Spain are in the line of fire," she said.
Colin Ellis of Daiwa Capital Markets Europe commented: "If there was any doubt, it is now clear that Greece is wholly dependent on overseas aid for its funding requirements."
Greece last week asked for emergency EU-IMF loans worth up to 45 billion euros this year to help it avoid high rates on the market, triggering immediate opposition as many Greeks are afraid of the loan conditions to be imposed.
The main Greek union, the General Workers Confederation, announced a May 5 private sector general strike against "neo-liberal blackmail" by the EU and IMF. The Adedy civil servants' union said it would join the strike.
Meanwhile on Tuesday, more than 1,000 demonstrators rallied in front of the Greek parliament against the government's appeal for a bailout.
In a statement, the Adedy union said: "The rich and the powerful must pay for the crisis, not the workers and society."
Date created : 2010-04-28