The Euroskpetic...

...chimes in on the Greek Tragicomedy.

“Europe risks the biggest coordination failure in modern history,” said David Simmonds, research chief at RBS. The Berlin talks are as vague as ever. “We believe that markets will remain very sceptical.”

UBS said it was disturbed by signs of counterparty fears among European banks that replicate events in credit derivatives before the financial crisis in late 2008. “Investors will need to be on their guard,” it said.

The Greek debt market came close to disintegration yesterday. Yields on two-year bonds rose briefly to 38pc. “This no longer has anything to do with interest rates: it is a forward contract on the return of the Greek Drachma,” said Charles Dumas, head of Lombard Street Research.

Markets are already looking beyond Greece to Portugal where spreads on 10-year bonds rose to 330 points -- higher than the level that first prompted Athens to invoke aid -- before falling back on pledges of further austerity.

Premier Jose Socrates is to bring welfare cuts planned for 2011 and 2012, accepting that the markets will not give Portugal another year to tackle its deficit of 9.4pc of GDP.

S&P cut Spanish debt one notch to AA with a negative outlook, warning that the fall-out from the housing bust will keep the country trapped in near slump until 2016. It said private sector debt of 178pc of GDP was a major concern.

Daniel Cohn-Bendit, leader of the European Greens, said Europe’s handling of the crisis had been “catastrophic” and rebuked Germany for resorting the “discipline of the whip”.

But Mrs Merkel is treading on eggshells. She faces a crucial election in North Rhine-Westphalia on May 9 that will decide control of the Bundesrat, and risks a court challenge if any rescue breaches the EU’s no `bail-out clause’. David Marsh, author of `The Euro: The Politics of the New Global Currency` said the moment of truth has come when Germany must decide whether to accept the burden of propping up Europe’s southern ring or let Greece fail and endanger its strategic investment in Europe’s post-War order.

“There are some senior figures who would like so see the gangrenous leg of Greece chopped off, to set an example. But they want to avoid leaving any German fingerprints on the blood-stained knife,” he said.

It is far from clear whether Athens will agree to further austerity as strikes hit the country day after day. Andreas Loverdos, Greece’s labour minister, said the EU-IMF team wants further wages cuts. “We cannot accept that.”