Germany wants more cutbacks

With investor confidence in Greece plunging, German Chancellor Angela Merkel increased pressure on the country to move ahead with further cuts in order to qualify for an aid plan that will help save it from default. Merkel said she won’t release Greek rescue funds until the country shows it’s got a «sustainable, credible» plan to cut its budget deficit and said that a final decision may come in a «few days.» Greek bonds plunged yesterday, sending yields to the highest since 1998, amid concern Germany is delaying approval of a 45-billion-euro rescue plan that would be co-financed by the euro region and the International Monetary Fund. The extra yield that investors demand to hold Greek 10-year debt over German Bunds rose 76 basis points to 635 basis points. Merkel said that there would be no decision on aid for Greece until the IMF works out a plan of cuts with the Greek government. She said Germany would assist Greece only after it agrees to take «tough» measures for the next several years. «Germany will help when the corresponding conditions are fulfilled,» Merkel said yesterday in Berlin. «It must be negotiated in all calmness, level-headedness and decisiveness.» Greek Finance Minister Giorgos Papaconstantinou was negotiating terms of the financial aid during a meeting of counterparts from the world’s biggest nations in Washington over the weekend. He said talks on the aid had gone well and he was confident Athens would secure help in May to finance its public debt. In addition to questions about when the aid package might be delivered, fears are increasing that, even with funds in place, Greece will have to restructure its debts, with investors liable to book losses and see the duration of the fixed-income assets they hold extended. Jeremy Batstone-Carr, head of private equity research at Charles Stanley stockbrockers in London, thinks restructuring is inevitable and represents a lesser evil than default. «Greece is hoping to bridge its financing gap for little more than a year,» he said in a research note. «Unless a solution emerges to address the financial markets’ obvious uncertainty regarding the crisis, the Greek government will be back, cap in hand, begging for further financing.» Will the crisis spread? The difference in yield, or spread, between German bonds and Irish, Italian, Portuguese and Spanish securities widened amid concern Greece’s debt crisis will spread to other indebted nations. Greece is unlikely to be the last euro nation to need an IMF bailout, with Ireland, Spain and Portugal «conspicuously vulnerable,» Harvard professor and former IMF chief economist Kenneth Rogoff told Bloomberg. The Irish yield spread over Bunds widened 13 basis points to 184 basis points, and the Italian increased four basis points to 99 basis points. The Portuguese yield difference to Bunds jumped 21 basis points to 212 basis points and the yield premium investors require for Spanish securities climbed six points to 98 basis points. Confusion about the timing and amount of emergency aid for Greece also prompted investors to sell euros yesterday. The euro dipped briefly below $1.33, falling against the greenback for the seventh trading session in the last eight. Agreement is a matter for entire eurozone Reaching an agreement on providing assistance to Greece is a matter relating to the financial stability of the eurozone as a whole and not only Greece, European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. Rehn also said all eurozone countries would be ready to act under the agreement on Greece. «All euro-area members are doing what is needed to be ready on time,» he said. «And I am confident that all euro-area member states and other actors involved including the ECB, IMF and Commission will be ready on time.» In Paris yesterday, French President Nicolas Sarkozy along with European Commission Chairman Jose Manuel Barroso called for quick and firm action to counter attacks on Greece from

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