Greek borrowing costs surge to fresh highs

Greek borrowing costs jumped to euro-era highs after a European Central Bank council member said that a short-term “selective default” by Greece might not have “major negative consequences”, the FT reports. The comments by Ewald Nowotny, Austria’s central bank governor, sparked a jump in two-year Greek borrowing costs of nearly 5 percentage points to 39.24 per cent at one point, one of the biggest daily leaps since the country joined the single currency. The Austrian central bank later clarified Mr Nowotny’s remarks, saying he was fully in agreement with the position of Jean-Claude Trichet, ECB president, who has warned that any default by Greece would result in its bonds not being accepted by the ECB as collateral. This helped the Greek bond market regain some of the losses, with two-year yields easing back to 39.02 per cent, up 4.55 percentage points on the day. Greek two-year bond yields have risen by about 12 percentage points since the start of July because of uncertainty over a second bail-out for the country.  Meanwhile in Spain, borrowing costs also surged as the country sold €3.79bn ($5.4bn) of 12-month bonds at an average yield of 3.702 per cent, significantly higher than the 2.695 per cent paid last month.