Markets pounded Greek bonds and banking stocks today, driving the debt-stricken euro zone member's borrowing costs to new highs and pushing it closer to tapping a last resort EU/IMF safety net.
The government struggled to reassure markets it can stay solvent after the premium investors demand to buy Greek rather than the benchmark German government debt surged for the third day in a row to a record high since Greece joined the euro.
But scepticism at a dearth of details surrounding a proposed European Union and International Monetary Fund lifeline continued to pile pressure on a country already struggling to cover its wide fiscal gap and huge public debt load.
Chris Pryce, senior Greece analyst for rating agency Fitch, said Athens' only choice now was to ask for help.
"Despite everything the EU and the euro zone have done there is still a lack of clarity (and) confusion about what they intend to do, when they intend do it and how much would be involved," he told Reuters.
"It is now up to the Greek government to go publicly to the EU and IMF and ask for the cash and the support."
Greece's government has pledged to cut its public finance deficit by almost one-third to 8.7 per cent of gross domestic product this year, but is also wary of sparking public unrest after a string of riots and strikes since last year.
Reluctant to give in to the pressures, Greece insists it prefers to borrow from markets and will use the European Union/International Monetary Fund safety net agreed only as a last resort, a call it repeated today.
"For the time being it is not necessary to activate the aid mechanism. The EU/IMF safety net is there to guarantee that Greece is not alone," said spokesman George Petalotis, adding Athens was striving not to borrow at "barbaric" interest rates.
But the 10-year Greek/German government yield spread spiked almost half a percentage point to as much as 463 basis points today. Two-year Greek government bond yields surged more than 100 bps to almost 8 per cent.
Credit default swaps insuring Greek bonds for one year jumped 125 basis points to 600 - the equivalent of $600,000 for $10 million in debt - after rising to a record 650 earlier in the day, according to Markit Intraday.
"Spread levels today are insane, they are not levels for a euro zone country," said Panagiotis Dimitropoulos, treasurer at Millennium Bank in Greece. "It seems Greece is being pushed towards the aid mechanism."
Rating agency Standard & Poor's said Greece was at risk of a downgrade if high borrowing costs persist and the government does not manage to address any deviation from its cost cutting plans that could follow, although senior analyst for Greece Marko Mrsnik said risk of default was very low.
Germany, which can veto Athens' access to the aid package, also held firm on its position that it is only a last ditch option, with a spokesman saying that, despite the jump in borrowing costs, "the government's position remains unchanged".
Dealing with its own financial problems as a local election looms, Berlin has been loath to set a bad example for other euro zone offenders by letting Greece off the hook too lightly.
Greece's woes drove the euro close to its 2009 low against the dollar on Thursday. It slipped 0.2 per cent to $1.3306 at 1227 GMT, just off its 2010 low of $1.3267.
Despite the intensifying turmoil around Greek assets and its spiralling borrowing costs, European Central Bank president Jean-Claude Trichet said there was no danger of default.
"I would say that taking all the information I have, that default is not an issue for Greece," he told reporters after the ECB left interest rates on hold at a record low 1 per cent and prolonged rules allowing Greek debt to be used as collateral for cheap central bank cash.
Reuters