Greek debt worries may derail market

On Monday Greece's sovereign credit rating was downgraded again by Moody’s. 2-year bonds now yield over 15 per cent and the national debt now stands at 150 per cent of GDP (gross domestic product).

So bond investors are betting that a Greek debt restructuring is inevitable. If the German and French goverments do not support this, a Greek sovereign debt default looks a certainty. Voters in these countries are unlikely to support a give away to the Greeks, so political will is not in Greece's favour. Ireland's new government is trying to renegotiate the terms of its €80 billion bail out, whether it succeeds is a matter of debate.

With €325bn of government debt outstanding at the end of 2010, Greek and other eurozone banks hold €120bn of this. Potentially a catastrophic exposure should a default ever occur.