Accumulated current account deficits (again assuming FDI inflows are small) would approximate the borrowing by a debtor economy from foreign creditors. The accumulated current account deficit of PIG is ~€700 billion. As noted above, the interbank part of the debt would have already surfaced under the €457 billion of NCB intra-eurozone claims. The rest, ~€300 billion, would mostly be in direct bank loans to PIG borrowers still on the books of creditor banks. Residual holdings of PIG bonds by German and French banks are small.

The time bomb now ticking for creditor banks is the €800 billion (accumulated current account deficit) loaned to Spain. Given the low level of Spanish public sector debt, we can assume that the majority was in the form of loans to private entities and banks in Spain. Italy has an accumulated current account deficit of ~€350 billion, or <30% of its GDP and, thus, a much smaller debt issue. The savings rate of Italians has been high enough to fund most of the economy's borrowing needs, including that of its public sector.

Total debts owed by PIIGS to foreign creditors is thus ~€1,450 billion. Actual NPL are a fraction of this sum, large enough to cause trouble for individual banks in Germany or France, but not the whole eurozone system, which has an aggregate GDP of over €10,000 billion. The ABS crisis of 2008, US$4 trillion in size, was a far scarier story.

Eoin Treacy's view The Euro's equivalent of the TED spread reflects the heightened risk premium attached to the Eurozone's banking sector. The spread broke out of a two-year base in July and continues to extend its advance. It is approaching the 100 basis point level which coincided with the upper side of the 2007 through 2008 range. However a clear downward dynamic would be required to indicate anything other than temporary resistance near this area on this occasion.

The Euro Stoxx Banks Index paused following an acceleration lower in early August. It hit a new low today and a sustained move above 120 would be required to challenge the progression of lower rally highs and medium-term supply dominance. The FTSE-350 Banks Index did not post a new low today but its pattern of underperformance is quite similar.

The DAX Index hit a new correction low today and while deeply oversold, a sustained move above 6000 would be required to begin to suggest demand is returning to dominance.