EU Commissioner Olli Rehn has said Greece can avoid a debt restructuring by a combination of lender patience and radically tackling its deficit. He added that a plan for Greece is now only days away.
he comments set the market tone on a day when sovereign debt, including the bonds of the weaker eurozone economies, proved less volatile than corporate debt or shares.
Greek and Irish government bonds traded sideways yesterday as the market waits for confirmation later this week about the true state of Greek finances.
The yield on 10-year Greek bonds edged up from 15.8pc to 15.9pc but remains well off recent highs. The yield on two-year Greek bonds fell.
Irish debt yields were more volatile but 10-year yields ended the day at 10.75pc, down on the previous day. The yield on Irish two-year government bonds fell more sharply. Irish two-year bond yields have fallen from 12.175pc to 10.6pc over the past three weeks.
Those yields held firm despite a plethora of bad news regarding industrial output and job from Europe and the US.
Mr Rehn's comments include the prospect of tying banks into a deal to roll over Greek debt as it falls due. That would help prevent Greece being driven to a default and reduce the amount of cash needed to fund debt repayments.
In return, banks will get goodwill from political leaders, no small thing, but may also get better terms on the rolled over debt.
The "Vienna Initiative" of 2009 could be a model for getting banks to roll over Greek debt as it falls due, Mr Rehn said.
The Vienna Initiative refers to a voluntary agreement by a number of European banks that took a softer line than they might have preferred with Hungarian and Bulgarian private debt in 2009.
At the time banks were considering pulling out of the region. They were persuaded that by staying they could help stabilise what threatened to become an even bigger crisis.
In an interview with the Bloomberg news agency, Mr Rehn said a similar initiative could work for Greece, if it's combined with the radical cost cutting.
Negotiations between Greece and lenders have dragged on longer than expected because of disagreements between the Socialist government and the conservative opposition over tax hikes contained in a new €6bn austerity plan.
Greece has been told to meet a deficit target of 7.5pc of GDP -- around €17bn -- this year after it failed to hit its 2010 target.
Despite problems agreeing terms, the EU said it was "optimistic" that talks could be wound up this week or early next week.
"We are making good progress and there is no major disagreement, but there is still work to be done," a spokesman for Mr Rehn said yesterday. (Additional reporting, Bloomberg)