Greece returns to haunt markets

EUROPEAN markets were on edge this morning as investors reacted to Greece's threat to default on any bondholders who do not take part in debt restructuring.

The move came on the back of figures which indicate that the eurozone has entered its second recession in just three years.

Household spending continues to freefall, companies are holding back on investment and exports and manufacturing are contracting. The European economy is clearly faltering and investors are not convinced about the success of Greece's swap deal.

The Greek public debt management agency said in a statement that Athens "does not contemplate the availability of funds" to pay private investors who hold on to their bonds once the restructuring occurs. The transaction is projected to wipe €100bn from Greece's debt, but 95pc of bondholders must participate for that target to be reached.

The deadline for investors to accept the debt swap is tomorrow and if the effort falls short of its goal of roughly 90pc participation, it could jeopardise new international loans for the country.

Ultimately Greece could be at risk of a more damaging general default on all of its outstanding bonds.