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Greece is bullish but the markets brace for a major default


World leaders piled pressure on eurozone countries to resolve the area's sovereign debt crisis after a meeting of the International Monetary Fund that revealed more dissent than determination and left financial markets with further troubling news and rumours to digest.

The head of the IMF, Christine Lagarde, was due to meet the Greek Finance Minister, Evangelos Venizelos, last night to press for further austerity measures aimed at reducing the country's debts, and Mr Venizelos publicly declared that "no Greek paper will ever go uncovered".

But behind the scenes, talks about a possible government default were also being stepped up.

Member countries of the IMF said at the weekend that they would act collectively and decisively to get through a "dangerous phase", but the communiqué contained no new measures and acknowledged the "different national circumstances" of its members.

There was also concern yesterday about whether the IMF had the resources necessary to tackle any fall-out from a Greek default, should it trigger a wider financial crisis and threaten the solvency of other, bigger governments. The organisation, which acts as lender of last resort for struggling governments, is reviewing whether to ask for additional contributions from its members, but the review will not conclude until April.

Rumours circulating around the IMF conference in Washington suggested Greece could default on as much as half of its €350bn sovereign debt, a larger figure than the markets expected. Traders are predicting another volatile week for equity, bond and currency markets amid the uncertainty.

At the IMF conference, there were sharp differences and sometimes stinging words between the players. The Swedish Finance Minister, Anders Borg, told reporters: "There is some risk of market disappointment due to the fact there were no further, more specific pledges from the euro countries at this time."

And several other members rounded on the European Central Bank, urging it to do more to prevent a Greek default from spreading by supporting the debt of other eurozone countries and strengthening the private banks that stand to lose billions from a default.

Tim Geithner, the US Treasury Secretary, said: "The threat of cascading default, bank runs and catastrophic risk must be taken off the table." A senior Chinese official questioned whether eurozone democracies were culturally and politically capable of restoring order. "The issue is whether Europe can make a decision," said Gao Xiqing, president of the state-owned China Investment Corp. "You come down to the ultimate question: Can you pull it off? Culturally, you need to change your way of living and ... way of spending."

Ms Lagarde, meanwhile, urged China to play a part by rebalancing its economy from exports to domestic demand.

Participants fear that the woes of the eurozone could push the world economy into a new recession, and the urgency of resolving the sovereign debt crisis was underscored by more disappointing economic news. Portugal's government said the country's economy would contract more sharply this year than it had previously expected and, in Britain, a ComRes survey of 138 business leaders for The Independent showed that the proportion who said that growth in their sector was slowing had risen from 26 per cent in June to 35 per cent now.

However, the survey suggests business leaders are not losing confidence in the Government. Some 70 per cent said they were confident in the ability of David Cameron, up from 66 per cent in June, while 60 per cent had confidence in the Chancellor George Osborne (down from 62 per cent). Confidence in the Labour leader, Ed Miliband, fell from 15 per cent to 11 per cent.