Greek problems get worse

Greek Prime Minister George Papandreou has asked the European Union and the IMF (International Monetary Fund) to initiate the recently negotiated €40bn emergency aid package. Earlier this month, a deal was agreed under which eurozone nations would provide emergency loans of up to 30bn euros ($40bn; £26bn) in the first year, with a further 10bn euros coming from the International Monetary Fund (IMF). Greece has 300 billion of outstanding debt with 56 billion euros due to be refinanced this year.

Moody's cut to Greece’s sovereign debt rating from A3 to A2 and warned of further possible downgrades added to pressure on the troubled country. The downgrade came after the European statistics office Eurostat increased Greece’s budget deficit in 2009 to 13.6% from 12.7% and warned that too could be revised further. Greece is aiming to cut its public sector deficit to less than 3% in 2012.

Confidence in the Greece economy has continued to fall, pushing its cost of borrowing to record levels in recent days as investors continue to worry that the government's attempts to curb the deficit will fail given the country's history of issues such as lax tax collection. On Friday evening, thousand's of protesters took to the streets of Athens to demonstrate against further austerity measures. The yield, or interest rate, on Greek 10-year bonds, fell to as low as 7.99% after Mr Papandreou spoke, after rising to nearly 9% on Thursday - its highest level for more than 10 years. It then crept back up to 8.66%.

The question is for government debt investors is what country could be next. Portugal, Spain and Italy look like likely candidates for pressure as their sizeable debt comes up for refinancing and if investors have little appetite to take on this debt or if the interest rates demanded are too high for the economies to sustain, we could see Greece being played out again.

But fell eurozone members have their own political problems. The German opposition SPD is demanding a full debate on their portion of the aid package which could delay any German contribution.

As George Soros warned last week, Greece is starting to experience the "Greek death spiral" as interest rates on the open market have climbed to unsustainable levels.