Greek government bond yields rose on Monday as Germany raised the idea of a referendum on the painful reforms Europe is asking Athens to implement in exchange for further aid, adding another layer of uncertainty to the issue.
German Finance Minister Wolfgang Schaeuble said securing public backing for the necessary sacrifices might be useful.
Eurozone governments have previously opposed such a vote, saying it could destabilize financial markets and trigger a run on struggling Greek banks.
Greek two-year yields rose 83 basis points to 21.34 percent, extending an earlier rise despite easing fears of a default on a 750-million-euro loan from the International Monetary Fund after two Finance Ministry officials said Athens paid the loan a day before it was due.
“Maybe that is the solution, to go back to the Greeks,” said Alan McQuaid, chief economist at Merrion Stockbrokers.
“But not knowing what the outcome will be and what happens afterwards causes people to be worried and add a risk premium for that uncertainty.”
The IMF payment does not fully remove fears of a near-term default.
Unless Greece can reach an agreement to unlock the 7.2 billion euros of bailout funds, it may struggle to honor another 1.5-billion-euro payment to the IMF in June and 3 billion owed to the ECB in July, as well as welfare payments.
In what could be another blow for Athens, analysts are expecting Fitch to downgrade its B credit rating on Friday.
Ten-year Greek yields were up 12 basis points at 10.90 percent.