Greek crisis intensifies as Joe Stiglitz calls for Europe to 'teach the speculators a lesson'

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By Edmund Conway

Yields on Greek debt rose by 14 basis points, as investors digested the fact that G7 and eurozone finance ministers refused at their weekend summit to provide more detail on a rescue package for the troubled economy.

Alongside Portugal, Spain, Italy and Ireland, Greece has been the focus of widespread market selling over the past few weeks, with investors fearing the countries may be unable to repair their balance sheets alone. The interest rate on Greek 10-year benchmark debt is now 6.75pc, compared with fellow euro member Germany’s rate of 3.14pc.

Suspicions that the Greek crisis could give way to a full-blown attack on the euro have been reinforced as it emerged that currency speculators have increased their bets against the currency to the highest level since its creation.

Contracts on the Chicago Mercantile Exchange (CME), a closely-watched speculation barometer, showed that in the past week net short positions against the euro rose from 39,500 contracts to 43,700 – worth €5.5bn ($7.5bn). Greek prime minister George Papandreou has characterised the behaviour of capital markets, which have put a rising premium on interest rates to his government, as part of a broader speculative attack on the currency.

The CME figures will spark fears that, much like George Soros in the early 1990s, hedge funds will lay siege to the single currency. Since Greece, Portugal, Spain and Italy, all of whom are facing similar issues, cannot devalue or inflate their way out of the crisis, economists suspect that they will have to receive assistance from other euro nations to avoid inflicting cuts of unprecedented ferocity on their economies.

Greek crisis intensifies as Joe Stiglitz calls for Europe to 'teach the speculators a lesson'

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