Athens reiterated on Monday it has no plans to restructure its government debt, a move its central bank chief said would be catastrophic, while markets speculated that some form of debt rescheduling was on the cards.
Under increasing pressure from the markets, Greece denied a Greek newspaper report that it wants to extend maturities on its outstanding debt, echoing dismissals from EU and IMF officials.
Bank of Greece Governor George Provopoulos said in a report to shareholders that a restructuring would hurt banks and pension funds, and shut access to capital markets.
The Bank of Greece has explained with clarity since last October that such a (restructuring) option is not necessary, nor desirable, he said. It would have catastrophic consequences.
But a number of reports that talks have already been set in motion hit debt markets and the euro on Monday and kept yield spreads of Greek government paper over German bunds near record highs. The 10-year spread was at a whopping 1,096 basis points.
The cost of insuring Greek debt against default also rose while Portuguese, Spanish and other lower-rated euro zone government debt came under pressure.
They're one year into a three year (bailout) program, I don't see an official (Greek debt restructuring) announcement soon, said Orlando Green, strategist at Credit Agricole.
But there is the contagion risk ... if these rumors continue with regards to Greek restructuring, although they seem premature at this stage.
Earlier on Monday a finance ministry official denied a report by daily Eleftherotypia the country had already requested restructuring talks with the EU and IMF.
The newspaper said Greece had told the International Monetary Fund and the European Union earlier this month at a meeting of European Finance ministers that it wanted to restructure its debt, extending repayment maturities.
It said discussions on the issue were expected to start in June, citing a senior IMF official, and that Treasury Secretary Timothy Geithner had also told Greek Finance Minister George Papaconstantinou a restructuring would be needed.
This is not true. The minister exhausted the issue yesterday, said the finance ministry official, who declined to be named, referring to repeated denials by Papaconstantinou over the weekend.
EU officials also dismissed media reports that the overborrowed country is seeking a restructuring. Echoing the Bank of Greece head, French Finance Minister Christine Lagarde told reporters in Paris that a sovereign debt restructuring for Greece would be catastrophic.
(Additional reporting by Angeliki Koutantou and Marius Zacharia in London; Editing by Hugh Lawson)