by Calculated Risk on 9/12/2011 11:22:00 PM

From the LA Times: Europe fears Greece is heading inexorably toward default

European politicians, who denied for months that bankruptcy was an option as Greece struggled to bring down an enormous budget deficit, are now beginning to acknowledge the possibility.

Nervous investors appear to increasingly believe default is just around the corner. They have withdrawn billions of dollars from Europe's stock markets over the last few weeks.
...
Banks in France and Germany scrambled to assure investors that they could survive their exposure to sovereign debt

And a discussion of the German views from Der Spiegel: Germany Plans for Possible Greek Default

The tougher talk is much more than show. The rest of Europe is losing patience with Athens. ...

The disappointment runs particularly deep in Berlin, where the government's crisis-management policy has clearly been going around in circles. In the beginning, the chancellor said that the Greeks ought to help themselves out of their own crisis. Then came the first and subsequently the second aid package. The new approach, the government said, was to rescue Greece so that the other debtor nations would be spared.

Now the Germans have come full circle, and the prevailing emotion is fear of a never-ending debacle in Athens. "Enough is enough," says one senior government official ... With a mixture of resignation and fatalism, Merkel and Schäuble are facing up to the inevitable and thinking the previously unthinkable: Greece is going bankrupt, and not even its withdrawal from the monetary union can be ruled out anymore.
...
The planning for the day of reckoning is already underway, in departments at the Finance Ministry in Berlin as well as in task forces at the EU in Brussels. German Finance Ministry officials hope that a Greek bankruptcy would be manageable, as long as European politicians keep their cool and the bailout funds are increased as planned.