A large number of European countries have effectively quarantined Greece in a bid to minimize the consequences on their credit systems in case of a Greek "accident." As ekathimerini reports, the actions are being taken in order to shield themselves and minimize the danger of contagion in case the negotiations between the Greek government and the eurozone do not bear fruit. This has sparked broad-based selling across global risk assets but particularly in Europe. Stocks from Germany to Spain are having their worst day of the year, European sovereign bond risk is exploding higher (contagion Mr. Schaeuble?), and Greek bank bonds and stocks are getting crushed.

European stocks plunged...

and sovereign boind risk has contagiously exploded!!

After news broke (as Ekathemerini reports) that neighboring countries have effectively quarantined Greece in a bid to minimize the consequences on their credit systems in case of a Greek “accident.”

Kathimerini understands that the central banks of Albania, Bulgaria, Cyprus, Romania, Serbia, Turkey and the Former Yugoslav Republic of Macedonia have all forced the subsidiaries of Greek banks operating in those countries to bring their exposure to Greek risk (bonds, treasury bills, deposits to Greek banks, loans etc.) down to zero in order to shield themselves and minimize the danger of contagion in case the negotiations between the Greek government and the eurozone do not bear fruit.

This quarantine was deemed necessary after the aggressive rhetoric of the new Greek government – particularly in the first few weeks after the election – regarding a debt restructuring, the non-completion of the creditors’ assessment and so on.

Special care was taken for the subsidiaries of Greek lenders, which have a major presence in neighboring states, to make sure that they would not proceed to new positions in Greek bonds, T-bills, deposits in Greek banks or interbank funding. The Greek government recently put press pressure on banks to think how they could get around the European Central Bank’s ban on the acquisition of more T-bills.

Another concern for local bank groups is the threat of a reduction in the Greek element of their subsidiaries in neighboring countries in case of turmoil in Greece.Don’t forget that the Cypriot-owned bank branches in Greece changed hands virtually overnight in March 2013 during the Cyprus bank bail-in process.

Greek banks are getting crushed as their bonds hit new lows...

Just under a year ago, everyone was calling Greece fixed... the miracle of Europe... crisis over...

Charts: Bloomberg