Rising expectations that Greece will have to restructure its mountain of debt, possibly as early as the summer, sent the euro and the bonds of weak euro zone members tumbling today.
The Reuters news agency quoted German government sources as saying they did not believe Greece, which sealed a €110 billion bail-out from the EU and IMF last year, would make it through the summer without restructuring.
A restructuring of Greek debt would be the first by a west European nation in over half a century.
The Greek government, saddled with a debt burden that is expected to swell to 160% of gross domestic product by 2013, has denied repeatedly that it plans to restructure and a government spokesman in Athens reiterated that stance today, saying 'we fully rule out' such a step.
'It would have catastrophic consequences,' Bank of Greece Governor George Provopoulos said.
But German government sources in Berlin told Reuters that this now looked unavoidable and suggested Greece should move quickly, rather than wait until its funding situation gets critical next year.
Pressure on other so-called peripheral countries mounted as well, with Spanish 10-year bond yields pushing towards record highs near 5.6% and Portuguese yields at a new peak above 9.3%. Ireland's 10-year yields were just under 9.95%. The euro fell to $1.42.25.
European officials have been at pains to stress that Spain can avoid the contagion that has forced Greece, Ireland and Portugal to seek rescues. Its much larger economy could strain the euro zone's resources to breaking point if it did succumb.
