(Reuters) - A German government adviser said on Tuesday that a restructuring of Greek debt was inevitable, raising pressure on Athens to seek a solution to the debt woes that are shaking investor confidence in the euro zone.
Greek borrowing costs rose and foreign demand shrank in the country's first debt auction since speculation of a debt restructuring flared last week following comments from Germany's finance minister.
After a weekend election in Finland in which an anti-euro party scored strong gains, the head of the party that is likely to lead the next government sent reassuring signals that the strength of the anti-euro True Finns would not derail a pending bailout for Portugal.
Financial markets settled after a tumultuous session to start the week, clouded by growing fears of a Greek restructuring. The euro pushed back up toward $1.43 after shedding nearly two cents on Monday in its worst one-day fall in over two months.
But the bonds of so-called peripheral euro zone countries like Greece, Portugal and Spain, all struggling with high debt and poor economies, remained under pressure, with yields hovering just below euro-era highs.
Clemens Fuest, who chairs the German finance ministry's technical advisory committee, said Greece's extremely weak balance sheet meant a restructuring was inevitable.
"One must recognize the realities -- I am expecting a haircut," Fuest told Reuters.
Outside of Berlin, officials continue to rule out a restructuring, with European Central Bank Executive Board member Juergen Stark warning in a Portuguese newspaper interview about the costs of such a move for Greek banks.
"It is a very firm denial from our side," a spokeswoman for the European Commission said after a Greek newspaper quoted a senior official from the EU executive as saying Athens had accepted a restructuring was unavoidable.
VOLUNTARY SOLUTION?
Despite the repeated denials, European officials appear headed toward some form of "voluntary" restructuring in which bond holders would agree to roll over their holdings next year or extend their maturities, possibly in combination with buying of Greek bonds on the primary market by the EU's rescue fund.
If Athens and its partners can convince investors to agree to such a step, it could help Greece cope with an expected funding shortfall next year.
According to the EU/IMF program it signed up to last year as part of its 110 billion euro bailout, the government must return to the markets in 2012 to raise 25 billion euros in long-term funding, a step which now looks impossible barring help from the EU, private investors or both.
An auction of 13-week treasury bills underscored the challenge for Athens, with the yield rising to 4.1 percent and foreign take-up falling back to 36 percent.
"In the last few days, talk about a debt restructuring has weighed on the yield and foreigners' appetite for Greek debt," said a bond trader who declined to be named. "Foreigners are worried and do not take part in the issues."
After a weekend election in Finland in which an anti-euro party scored strong gains, the head of the party that is likely to lead the next government sent reassuring signals that the strength of the anti-euro True Finns would not derail a pending bailout for Portugal.
Financial markets settled after a tumultuous session to start the week, clouded by growing fears of a Greek restructuring. The euro pushed back up toward $1.43 after shedding nearly two cents on Monday in its worst one-day fall in over two months.
But the bonds of so-called peripheral euro zone countries like Greece, Portugal and Spain, all struggling with high debt and poor economies, remained under pressure, with yields hovering just below euro-era highs.
Clemens Fuest, who chairs the German finance ministry's technical advisory committee, said Greece's extremely weak balance sheet meant a restructuring was inevitable.
"One must recognize the realities -- I am expecting a haircut," Fuest told Reuters.
Outside of Berlin, officials continue to rule out a restructuring, with European Central Bank Executive Board member Juergen Stark warning in a Portuguese newspaper interview about the costs of such a move for Greek banks.
"It is a very firm denial from our side," a spokeswoman for the European Commission said after a Greek newspaper quoted a senior official from the EU executive as saying Athens had accepted a restructuring was unavoidable.
VOLUNTARY SOLUTION?
Despite the repeated denials, European officials appear headed toward some form of "voluntary" restructuring in which bond holders would agree to roll over their holdings next year or extend their maturities, possibly in combination with buying of Greek bonds on the primary market by the EU's rescue fund.
If Athens and its partners can convince investors to agree to such a step, it could help Greece cope with an expected funding shortfall next year.
According to the EU/IMF program it signed up to last year as part of its 110 billion euro bailout, the government must return to the markets in 2012 to raise 25 billion euros in long-term funding, a step which now looks impossible barring help from the EU, private investors or both.
An auction of 13-week treasury bills underscored the challenge for Athens, with the yield rising to 4.1 percent and foreign take-up falling back to 36 percent.
"In the last few days, talk about a debt restructuring has weighed on the yield and foreigners' appetite for Greek debt," said a bond trader who declined to be named. "Foreigners are worried and do not take part in the issues."