David Prosser: Greece moves even closer to a default

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The Independent Online

Outlook Hard-pressed savers struggling for income in this 27th consecutive month of Bank of England base rates at 0.5 per cent might be forgiven for casting a glance at Greece's 10-year government bonds, now paying a yield of almost 17 per cent. That's a record premium over the yields on offer from German government debt, reflecting the increasing certainty in the bond markets that investors will not get all of their capital back – at least not within the term.

The latest spike in Greek bond yields reflects yesterday's GDP data, which revealed the country's economy was contracting at an annual rate of 5.5 per cent during the first quarter of the year – much worse than anyone had expected.

Last year's bailout package, which Europe and the IMF are now considering extending, was put together on the basis that Greece's economy would shrink by just 3.8 per cent in 2011. Barring a dramatic reversal of fortunes – and there is no reason to be hopeful – that now looks much too optimistic.

The GDP data is, then, yet another reason to doubt that last year's bailout – even assuming the Greeks are judged to have done enough to qualify for the next slice of money – is going to be sufficient.

Not that everyone is yet convinced. Jean-Claude Trichet, the president of the European Central Bank, was making it plain yesterday he won't back a restructuring of Greek debt to the detriment of private investors, despite suggestions from the German finance minister on Wednesday that this is what is now necessary.

Still, Mr Trichet's opposition notwithstanding, even the most income-hungry of savers would be wise to avoid these bonds.

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