Well, default is not conducive to repayment either. And if the German banks (or at least the ones that have the ear of the BuBa) are geared as hard as I think they are, a full default won't be that much worse for them than a thirty percent haircut (which is, after all, what the bonds are trading at). You can only go bankrupt once - there are no "doubleplus insolvencies."

Further, if the Greek bonds are not repaid because the Greek are rioting in the streets, then obviously it is those brown-skinned barbarians who don't understand civilised virtues of thrift and austerity that caused the virtuous, prudent and generous German banks to go bust. Whereas if the German banks go bust because they take the same, negotiated, haircut as everybody else, then it'll be a lot harder to prevent people from arguing that the bailout should come with strings attached.

And avoiding strings on the private banking sector is the point of the exercise. Sure, they may tear Europe apart in the process. But since when does the BuBa or the EPP care about the European interest?

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.