Greece suffers as investors drive up loan costs

GREECE'S borrowing costs hit a fresh high yesterday after the government said the country's banks had asked for billions of euros in support and eurozone states argued over the conditions of potential bail-out loans.

Investors shed bank shares and drove up the premium demanded for buying Greek rather than German bonds, fuelling a vicious circle of economic downturn and market scepticism over Athens' ability to cut its huge public deficit.

Prime minister George Papandreou hailed a eurozone/ International Monetary Fund safety-net deal agreed last month to help the country of 11 million avoid bankruptcy, and said it rendered the crisis manageable.

But the banks' request for extra help highlighted the problems facing the entire Greek economy – expected to shrink at least 2 per cent this year, partly as a result of austerity measures imposed to tackle the deficit.

Hit by a series of credit rating downgrades, the banks asked to tap some 17 billion (15bn), mostly in state guarantees, that remain from a 28bn support scheme launched in 2008 to help them cope with the credit crisis.