GREECE’S BORROWING costs rose to a record high yesterday amid concern in financial markets on differences between euro-zone countries on details of any rescue.

The interest rate premium Athens pays over benchmark German bonds rose to more than 4 percentage points, its highest level since Greece joined the euro zone. Greek 10-year borrowing costs touched a high of 7.161 per cent, up more than half a percentage point on the day, before closing at 6.995 per cent.

The euro zone and the International Monetary Fund agreed last month on the principles of an emergency loan package for Greece, should it be needed.

Differences emerged yesterday over how much Athens should pay for the support. While many countries are prepared to offer funds at rates substantially below market levels, Germany has demanded that Greece pay market rates.

Yields on two-year Greek paper jumped more than 1.2 percentage points to a high of 6.48 per cent, an extreme single-day move for any sovereign debt.

The move was attributed in part to thin trading, but dealers warned that fears on Greece’s ability to borrow risked becoming self-fulfilling should market volatility continue. Greece has covered its April funding, but needs to borrow another €10 billion in May, according to the country’s Public Debt Management Agency.

One senior Greek banker said: “The issue of a European Union bailout looms large, but it doesn’t provide comfort because details are still lacking.”

A worsening macro-economic outlook is adding to Greece’s problems. The European Commission’s May forecast is expected to show the Greek economy shrinking this year by 2.5 per cent, against projections of a 2 per cent contraction.

A Greek finance ministry official said Greece was still on track to reduce this year’s deficit to 8.7 per cent of GDP. – Copyright The Financial Times Limited 2010