Germany tries to calm markets in surrender over Greece
Germany yesterday moved to calm nervous markets by saying it wanted to stabilise the eurozone as a whole, including all member states, government spokesman Steffen Seibert said.
However, market analysts believe Germany may be getting ready to give up on Greece, as measures in the credit markets signal growing concern about the smaller nation's ability to repay investors.
Yields on Greek two-year notes rose above 60pc yesterday for the first time.
Credit-default swaps to insure the country's five-year bonds and to speculate on government securities closed at an all-time high of 3,500 basis points.
After almost two years of fighting to contain the region's debt crisis, and providing the biggest share of three European bailouts, German Chancellor Angela Merkel is laying the groundwork for what markets say is almost a sure thing: a Greek default.
"It feels like Germany is preparing itself for a debt default," Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said. "Fatigue is setting in. Germany could be a first mover or other countries could be preparing, too."
Officials in Ms Merkel's government were debating on how to shore up German banks in the event that Greece failed to meet the budget-cutting terms of its aid package and was unable to get a bailout-loan payment, three coalition officials said.
The move capped a week of escalating German threats that Greece will not get the money unless it meets fiscal targets, and as investors raised bets on a default.
Protecting their banks and a hardening of rescue terms risk isolating Germany and unnerving global policymakers already fretting that the region's political tussles were roiling markets and threatening growth.
Underscoring the tone of weekend talks of group-of- seven finance chiefs, US Treasury Secretary Timothy Geithner said European authorities must "demonstrate they have enough political will" to end the crisis.
Lars Feld, a member of the German government's council of economic advisers, said that a "disorderly restructuring" of Greece might take place if the Greek government decided to get out of the eurozone.