German politicians came under pressure Wednesday to cast aside their doubts over a bailout for Greece, with markets increasingly alarmed that Athens may default on its debt and trigger a meltdown elsewhere in Europe.
The heads of the European Central Bank and International Monetary Fund were both due to brief German lawmakers about the growing crisis that is pounding global stocks and driving up borrowing costs for several euro zone countries.
European Commission officials dismissed any talk of a restructuring of Greece's debt mountain, which totaled 115 percent of gross domestic product last year and is projected to push even higher as Athens struggles to tame its huge deficit.
However, the spread between Greek and German bonds hit record highs Wednesday and the cost of insuring Greek debt rose above Venezuela's, according to CMA Datavision, suggesting the market believes Greece is more likely than not to default.
Greece has asked for as much as 45 billion euros ($59.94 billion) in emergency loans from its euro zone partners and the IMF. Investors, fearing the Germans in particular are dragging their feet, are urging swift implementation of a bailout.
The chances of a default by the Greek government are increasing not by the day but by the hour. If the IMF and European governments don't come up with something quickly, then I see the market going down further quite rapidly, said Koen De Leus, economist at KBC Securities.
The euro hit a one-year low against the dollar while European stocks fell to a seven-week low.
Rating agency Standard and Poor's slashed Greek debt to junk status Tuesday and also downgraded Portugal, raising concerns the crisis may engulf other heavily indebted EU states.
European Central Bank Executive Board member Juergen Stark said EU governments must move rapidly to put their finances in order, adding that current fiscal policies were not sustainable.
The onus is now on governments to ensure that the crisis that initially affected the financial sector, and subsequently the real economy, does not lead to a full-blown sovereign debt crisis, Stark said.
Averting it will require very ambitious and credible fiscal consolidation efforts. In fact, substantially stronger consolidation efforts than those conceived so far.
European Union President Herman Van Rompuy said he would convene a summit of euro zone countries around May 10 and insisted there would be no restructuring of Greek debt.
Our governments are fully committed to provide support for Greece to ensure the stability of the euro zone, Van Rompuy, in Tokyo for a EU-Japan summit, told a news conference.
I'm ... fully confident that an agreement will be reached in the coming days on a very strong and ambitious adjustment program which will set a credible, medium-term strategy for the Greek economy.
Public opinion in Germany is particularly hostile to the idea of bailing out Greece, which has misled its partners in recent years about the gravity of its deficit and has failed to implement the sort of tough reforms Germany has undergone.
Chancellor Angela Merkel's party risks defeat in a regional election on May 9 and has faced fierce pressure to cast Greece adrift, despite warnings that could lead to market mayhem.
ECB President Jean-Claude Trichet and IMF chief Dominique Strauss-Kahn will brief German leaders on the plans to help Greece and are due to hold a news conference around 1230 GMT. Merkel will make a statement at 1445 GMT.).
France's Budget Minister Francois Baroin said Germany was moving toward acceptance that it had to offer Greece a lifeline.
Germany is removing its remaining doubts and questions over the German engagement and therefore Europe's engagement, he said, adding that Portugal was not in the same boat as Greece.
The situation in Portugal is not the same as in Greece. The debt level is important but the Portuguese did not lie.
Members of Merkel's Christian Democrats (CDU) have said they want to discuss forcing investors to take a discount on Greek debt. Such talk has effectively brought a halt to trading in Greek sovereign debt on secondary markets.
Greece's securities regulator banned short-selling in shares on the Athens bourse until June 28 after investors responding to the deepening debt crisis ditched Greek assets.
As market pressure on Greece has intensified, signs have grown it needs much more than 45 billion euros.
The Financial Times reported the IMF is considering raising its contribution by 10 billion euros to 25 billion.
S&P cut its rating of Greek government debt by a full three notches to BB-plus, the first level of speculative status. The outlook is negative, meaning the agency could downgrade Greece again.
The downgrade put Greece below Kazakhstan, Hungary and Iceland, the last of which rocked global markets when its main banks imploded at the start of the global financial crisis.
Most Greeks disapprove of their government's decision to ask for financial aid, according to the first opinion poll since the request was made. Of 1,400 people surveyed, 60.9 percent said they were against the decision, said the poll, released on Tuesday by Greek Public Opinion for Mega TV.
(Writing by Dominic Evans and Crispian Balmer; editing by Mark Trevelyan)