Padhraic Garvey, head of rates strategy for developed markets at ING Financial Markets, said: “We are heading into a critical period as the chances rise that a government may fail to raise the money it needs.

“Spain, Portugal and Ireland are the obvious ones to worry about. Are investors willing to stay long, or buy the debt of these countries? I’m still not seeing investors willing to buy into the periphery.”

Some strategists say the return of most investors from holidays this week could increase volatility in these markets because many have put decisions on their portfolios on hold during the summer.

With most investors back at their desks, some could start selling peripheral debt in the coming weeks, particularly as the outlook for the global economy has deteriorated. In spite of some better than expected data out of the US last week, worries about a double-dip recession have increased.

But other strategists insist governments will have little difficulty in funding themselves, even if they have to pay higher premiums or yields to attract investors. They say countries such as Portugal and Ireland have already raised most of the money they need this year.

Government bond yields of the peripheral countries, however, may come under further selling pressure.

Greece's exit from the eurozone would be the "worst possible option", Europe's central bank chief said at the weekend amid concerns over the debt-stricken country's ability to pull itself out of crisis.



Ahead of a crucial week for George Papandreou, the prime minister, with threats of renewed civil unrest over government austerity policies in the run-up to the leader's keynote annual economic speech, the ECB president sought to squash speculation that Athens' only solution was to revert to the drachma.



"We created the euro to achieve the single market for the prosperity and stability of Europe," Jean-Claude Trichet said at a meeting of prominent political and business leaders on the shores of Italy's Lake Como. "The national governments have to take care of their own national competitiveness within the euro area."



The Greek administration has won widespread praise for implementing an unprecedented belt-tightening programme of tax hikes, wage and pension cuts in return for a three-year, €110bn (£92bn) package of emergency aid from the IMF and eurozone nations.



Without the rescue loans, the EU member state would have defaulted on its sovereign debt in May.



At a conference marking his socialist Pasok party's foundation, Papandreou insisted that Greeks, who are experiencing their first recession in 16 years, were on course to not only exiting the crisis but emerging much stronger for it.



But his government has also been criticised for failing to move fast enough to enact reforms spurring growth and development, seen as vital to kick-start the economy. Despite the measures, revenue intake has also remained off-target.



With borrowing costs for the nation back at the record levels that preceded the bailout – and public anger over austerity measures poised, with summer's end, to spill onto the streets – leading economists are again questioning whether Greece can weather the storm.



Galloping unemployment has helped fuel fears that the country is heading for an unparalleled winter of discontent.



An MRB poll revealed that an overwhelming 81.7% of the population believe the ruling socialists will soon be forced to resort to yet tougher measures, while nearly 46% think it likely that Greece would become bankrupt.



Highlighting the scepticism surrounding Greek efforts to solve the crisis, the head of Germany's prestigious thinktank IFO Institute, Hans-Werner Sinn, predicted that further austerity would push the nation to the brink of "civil war".



The "least bad" option, he said, would be for Athens to drop the common currency.

"The policy of forced 'internal devaluation,' deflation and depression could risk driving Greece to the edge of civil war," Sinn told the gathering of political and business leaders in Italy. "It is impossible to cut wages by 30% without major riots … Greece would have been bankrupt without the rescue. All the alternatives are terrible, but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks."

“This tragedy does not have a solution,” said Hans-Werner Sinn, head of the prestigious IFO Institute in Munich.




“The policy of forced 'internal devaluation', deflation, and depression could risk driving Greece to the edge of a civil war. It is impossible to cut wages and prices by 30pc without major riots,” he said, speaking at the elite European House Ambrosetti forum at Lake Como.



“Greece would have been bankrupt without the rescue measures. All the alternatives are terrible but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks,” he said.



Dr Sinn said Greece is an entirely different case from Spain and Portugal, which still have manageable public debts and can bring their public finances back into line with higher taxes.



“Greece would have defaulted in the period between April 28 and May 7, had the money not been promised by the European Union,” he said, describing the failure of the EU’s bail-out strategy to include a haircut for the banks as an invitation to moral hazard.



“There should be a quasi-insolvency procedure for countries. Creditors have to accept a haircut before any money flows for rescue plans, otherwise we’ll never have debt discipline in the eurozone,” he said.



Greek society has so far held together well, despite a wave of strikes and street violence in the early months of the crisis. However, unemployment is rising fast and political fatigue with such austerity policies typically sets in the second year.



Under the rescue deal, the eurozone pledged €80bn of new loans at 5pc interest and the International Monetary Fund offered a further €30bn.



The joint bail-out was hoped to safeguard Greece against the pressure from global capital markets for two and half years, but the relief rally proved short. Spreads on longer-term Greek government debt have surged back to crisis levels of about 800 basis points, implying a high risk of default.



“We are in the second Greek crisis right now, today,” said Dr Sinn.



Greece is undergoing what amounts to an IMF austerity package but without the IMF cure of debt restructuring or devaluation that usual for a country with a spiralling public debt and a chronic loss of competitiveness.



The IMF says Greece’s debt will rise to 150pc by 2013-2014 even if Athens complies fully, a strategy viewed as self-defeating by several ex-IMF officials. There is a strong suspicion that the real objective is to bail-out North European banks with heavy exposure to Southern Europe, rather help Greece.



Dr Sinn said the Germany is now was super-competitive after clawing back 18pc in competitiveness during its long slump. “We’re in a new phase of history. The toggle switch has turned and we are going to see a mirror image of the last 15 years. This time it is Germany that will have an internal boom,” he said.



Germans will not recyle their savings in the Club Med region. They will invest at home.