The threat of a Greek default has become so real that French banks, which constitute some of the top Greek debt holders, have intensified their efforts to ease the country's floundering finances.
French lenders, along with their government, have suggested a debt rollover program, the first private-sector proposal to help save Greece.
The proposal suggests reinvesting 50% of maturing Greek debt into 30-year Greek government bonds between now and 2014. The new securities would pay a coupon close to current loans' interest rates, and offer a bonus for additional Greek gross domestic product (GDP) growth.
Another 20% of maturing Greek debt would be put into AAA-rated securities, like French Treasury bonds, as a "guarantee fund" for repayment on the 30-year debt holdings. This would take some of the Greek debt holdings off of banks' balance sheets.
French President Nicolas Sarkozy introduced the plan at a Paris news conference yesterday (Monday), saying French banks and insurance companies were committed to making it a reality.
The plan is a stark illustration of how dire the situation has become.
It's well understood that the European Union could be debilitated by a Greek default, but the United States has just as much at stake.
"The largely untold 'rest of the story' is this: If the European banking sector implodes, the U.S. financial system could take an unqualified beating," said Money Morning Contributing Editor Shah Gilani. "Big U.S. banks have been lending generously to banks across Europe. Close to 29% of their lending books during the past two years have gone to their heavyweight European counterparts. While they have pulled back considerably as a result of recent turmoil, U.S. banks are widely believed to have $41 billion of direct exposure to Greece."