by Calculated Risk on 10/05/2011 03:50:00 PM

This sounds like EU policymakers are getting ready for either larger haircuts for private Greek debt holders or a default. And is sounds like they are preparing to force the banks to recapitalize. These tests are going to have be conducted pretty quickly ...

• From the Financial Times: EU banks face new ‘Greek’ stress test

European Union finance ministers have asked the bloc’s leading bank regulator to test the strength of Europe’s banks on the assumption of a big writedown on Greek sovereign debt.

The move, a tacit admission that the European Banking Authority’s two previous rounds of bank stress tests were not sufficiently robust, came as Angela Merkel ... said she was prepared to recapitalise her country’s banks if necessary.
excerpt with permission

The article says Merkel would like to discuss an EU-wide bank support plan at the next EU summit in two weeks.

• From the WSJ: IMF Floats Bond-Buying Proposal in Europe

The International Monetary Fund could create a special financing tool to buy bonds in private markets as a way to help stem the euro zone's debt crisis, a senior IMF official said Wednesday.
...
Such a plan could aid countries such as Spain and Italy, which face rising costs for financing in capital markets.

• From the WSJ: ECB Chief's Legacy Under Fire

Many economists expect the ECB to keep interest rates on hold at Thursday's meeting, despite signs that the euro-zone economy is stagnating and may even slide into recession later this year. ... Mr. Trichet is expected Thursday to unveil new stimulus measures aimed at protecting European banks from short-term funding pressures.

The Greek 2 year yield is up to 66%. The Greek 1 year yield is at 140%. (Obviously expecting a large haircut)

The Portuguese 2 year yield is down to 17.5% and the Irish 2 year yield is at 7.1%.

The Spanish 10 year yield is at 5.1% and the Italian 10 year yield is at 5.5%.