July 3, 2011
Financial markets are braced for renewed turmoil this week amid growing doubts about the complex rescue plan for the debt-burdened Greek economy.
Analysts are increasingly questioning the French and German governments' plan for holders of Greek bonds to swap them for new loans as part of a fresh aid package.
The Greek prime minister, George Papandreou, met his side of the rescue bargain last week by winning MPs' approval for radical new austerity measures, including €50bn of privatisations, public sector wage cuts and widespread civil service job losses. But eurozone ministers have so far failed to agree details of a new rescue, expected to be up to €110bn.
The debt-swap proposal, which French and German banks have agreed to, involves offering new 30-year loans in exchange for expiring bonds, to meet Germany's demand that investors bear some of the costs of a new Greek bailout.
But analysts say it is likely that ratings agencies could still brand the plan a default. That would trigger chaos in world markets, as investors were forced to slash the value of their Greek debts - and could also lead to Portugal and Ireland, the other bailed-out eurozone states, having their debts downgraded.
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