"There will always be a bail out in the EU.

"The PIIGS owe 700 billion to Germany and 900 billion to France.

"France and Germany are actually bailing out themselves"

Eoin Treacy's view Thank you for this highly informative illustration from the New York Times which demonstrates how intertwined European creditors and debtors are. The numbers involved in the European debt markets are huge but one also needs to remember that all of this debt does not come due at once.

Greece's most immediate issue is that its cost of credit soared as a major roll date on its debt was coming due, initiating the need for a bailout to supply the required liquidity. Major Greek creditors such as France and Germany would stand to take heavy losses in the event of a Greek default. The most prolific fear among investors would appear to be that the Greek problem is only the tip of the iceberg because German, French and UK liabilities in similarly fiscally weak countries are even greater.

How might the ECB and European governments manage these threats? We might look to the USA for an answer. The subprime/liar loans/NINJA loans issue began because people who had no chance or, often, no intention of paying back the loans were given access to abundant credit. Peripheral countries in Europe gained access to massive liquidity injections on admission to the Euro and at least Greece cooked the books in terms of its ability to service its debt.

The global banking system came to a standstill as a result of the USA's credit bust. Europe appears intent on avoiding the same outcome. So far, banks have not been allowed to fail outright and the same policy is now being rolled out to sovereigns, in effect to ensure the banks do not fail.

While the IMF, ECB and Greece have agreed a bailout, doubts remain as to how many of the agreed tightening conditions the Greek people are willing to accept. This doesn't even begin to raise the question as to how much additional fiscal tightening the populations of Spain, Portugal and Ireland are willing to accept; raising the risk that even more bailout money will need to be made available. This article by Gabi Thesing for Bloomberg may also be of interest.

The ECB might have no other choice than to accept a much greater degree of quantitative easing, lower interest rates and an even weaker Euro. The ECB's next rate announcement is tomorrow and it will be interesting to see what kind of commentary comes with it. If I remember correctly, someone at the ECB made a comment more than a year ago that they didn't want to use all the ammunition in the gun by following the USA and UK to rates below 1%. I wonder if they have changed their minds. German 10yr yields hit a new low today and while somewhat oversold in the short-term, they remain in a consistent downtrend; suggesting investors increasingly feel the need for a Eurozone safe haven.