The size of the aid package for Greece may need to rise to €120 billion and the support package, according to International Monetary Fund Managing Director Dominique Strauss-Kahn.
Speaking after a meeting with German politicians he warned about the potential contagion affect on the euro and the rest of Europe if decisions on how to address the problems facing Greece are delayed.
“I don't want to hide behind a rosy picture. It's not easy. ... Every day which is lost is where the situation is going worse and worse.”
“It can also have consequences far away. We have to face a difficult situation. We are confident we can fix it... But if we don't fix it in Greece, it may have a lot of consequences on the EU.”
The Greek bailout of Greece is likely to total up to €120 billion, a German lawmaker said after Mr Strauss-Kahn held talks in Berlin. Mr Strauss-Kahn later said it was too soon to give details as the rescue package was not yet finalised.
Germany’s finance minister Wolfgang Schaeuble said the country’s parliament may make a final decision on the support package by May 7th.
"It's completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be speeded up now," German Chancellor Angela Merkel told reporters in Berlin today.
"We hope that they can be completed in the next few days."
The sense of urgency and the potential for a larger support package that could meet much if Greece’s needs for the next three years appeared to ease market concerns somewhat this evening.
"It stopped the rot in Greek government bonds," said Nick Stamenkovic, strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks and investors. "This will cover Greece's needs not just for this year, but also for 2011 and 2012.
Two-year Greek note yield fell 164 basis points to 17.35 per cent as of 4.34pm in London after earlier soaring as high as 26 per cent.
The pressure on Irish bonds also eased this afternoon as the premium demanded by investors to hold Irish 10-year bonds over the German bund – Europe’s benchmark government bond – narrowed to 223 points, from 245 points earlier. The Dublin market closed down 2.5 per cent at 3,257.
Standard and Poor's today lowered Spain's debt rating one step to AA from AA+.
This resulted in the risk premium investors demand to hold Spanish bonds surging to the highest in more than a year today while the price of insuring Spanish bonds against default reached a record as concerns about Greece's ability to pay its debt spilled over into Spanish and Portuguese markets.
Greek bonds had plunged earlier, leading declines among the securities of Europe's most indebted nations, as credit downgrades for Greece and Portugal yesterday dented investors' confidence in their ability to pay their debt.
Greece's credit rating was cut to junk by S&P yesterday, the first time a euro member has lost its investment grade.
EU president Herman van Rrompuy said European governments were committed to providing support for Greece to ensure the stability of the euro zone.
Greek two-year government notes rebounded as policy makers signalled Greece may get enough financial aid to help the country manage its debt burden and avoid a default for three years.
However, these is concern that credit spreads remain elevated for banks from Portugal and Spain it will cause pain in terms of their financing.
Credit default swaps - derivatives that offer insurance against corporate defaults - on banks have jumped wider after Standard & Poor's downgrade of Greece and Portugal late last night and as concerns over Greece's debts have intensified.
Minister for Finance Brian Lenihan said today he is "confident" measures taken by the European Central Bank "will stabilize interest rates and prevent their undue increase."
Bloomberg/Reuters/PA