June 16, 2011
The cost of insuring Greek government bonds against default soared to another new record Thursday as a growing government crisis cast doubt on the country's ability to continue qualifying for international aid.
Jitters swept through bond markets of other high-debt countries. Meanwhile, German government bonds, or bunds, reaped new gains as investors banked on their reputation as Europe's safe haven.
Bunds hit contract highs while bonds from highly indebted euro-zone countries were hammered.
Greek Prime Minister George Papandreou late Wednesday announced plans to reshuffle his cabinet and seek a vote of confidence after failing to convince opposition parties to form a national unity government. Protesters also thronged the streets of Athens to protest the government's austerity drive, underscoring rising resentment with the belt-tightening measures.
Concerns about a possible political vacuum would only undermine confidence, with differences between the European Central Bank and Germany on involving private bondholders in a possible aid deal for Greece fanning worries that an agreement may be delayed.
ECB Governing Council Member Nout Wellink said the euro-area bailout fund may have to be doubled to cover potential risks, rekindling worries that the debt crisis will keep spreading.
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