Pressure on Greece to request activation of a €45 billion emergency loan facility from the eurozone and International Monetary Fund increased this morning as concerns about the country’s credit-worthiness pushed its borrowing costs up to record levels.

“I think it is increasingly likely that the Greek government will make a request to activate the [financial assistance] mechanism,” Olli Rehn, the European commissioner for economic and monetary affairs, said yesterday.

Officials from the European Commission, International Monetary Fund and European Central Bank are in Athens for technical discussions with the Greek government on the conditions that would apply to support from the emergency loan facility.

Rehn, who is in Washington, DC for a meeting of finance ministers from the G20 group of industrialised and emerging economies, said that he expected a request from Greece to come after the technical discussions are completed, in around two weeks.

A combination of a hike in Greece’s estimated deficit for 2009 to 13.6% and a ratings downgrade by credit ratings agency Moody’s yesterday fuelled market speculation about Greece’s ability to pay its debts. Yields on Greece ten-year bonds reached 8.92%, the highest level since 1998 and 580 basis points more the yield on German bonds, the benchmark rate for eurozone bonds. The cost of credit default swaps (a type of insurance against default) on Greek sovereign debt reached an all-time high, smashing through the 600 basis point barrier for the first time.

Moody’s said that its decision to cut Greece’s rating by one notch to A3 was based on a “significant risk that debt may only stabilise at a higher and a more costly level than previously estimated”. It said that the “fractious mobilisation of external assistance” for Greece by eurozone governments, and the hike in the 2009 deficit figure had contributed to the revision. It also said that Greece was on course for further ratings cuts.

“It is unlikely that the rating will remain at A3, unless the government’s actions can restore confidence in the markets,” Sarah Carlson, a senior analyst in Moody’s sovereign risk group, said.

Moody’s decision has strengthened the belief on the markets that Greece will be unable to repay a €8.5bn bond that matures on 19 May, meaning it will have to either seek financial support or restructure its debt if it is to avoid default.

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