There has been a dramatic selloff of securities and particularly shares of  European banks that are exposed to Greek debt.

At one stage France's BNP Paribas was down 14%. France's two other big banks, Societe Generale and Credit Agricole, were down 8%. In Germany, Deutsche Bank fell 9% and Commerzbank 6.5%. Unicredit, the Italian lender, saw its shares suspended after falling 7.5pc

Investors scurried for safety pushing down the yield on 10 year German bonds and boosting the exchange rate for the Japanese yen.

This story is beginning to resemble the folktale about the person who committed a crime and was given the choice of eating putrid fish, receiving 50 lashes or paying a fine and being expelled from the city. Those familiar with the story know that the person ended up paying the fine and being expelled from the city after first sampling the putrid fish and absorbing 40 lashes.

When the Greek sovereign debt crisis first erupted, there were economists who advised that the Greek debt could never be repaid and particularly under the terms of the bailout. They advised that it was best to let Greece default and restructure the debt with as soft a landing as possible. Greece's creditors would not receive full repayment on their loans.

This proposal was rejected on the grounds that it would create chaos and engender lack of confidence in the European banking system. Europe therefore opted for the bailout approach.

The approach has reached a crisis point because the countries providing the cash, notably Germany, have lost confidence in Greece's ability to make effective use of the loans and stave off bankruptcy.

Despite all the money thrown at Greece, the situation is no better; it may even be worse. According to the European Commission, Greece's budget deficit in 2011 will climb to 9.5% --way above the original forecast of 7.6%. As if to add insult to injury, Greek tax collectors walked off the job today to protest cuts in their salary.

Meanwhile in Germany, counted on to provide financial salvation, the politicians are showing increasing reluctance to commit what they consider to be political suicide

Germany's Economy Minister Philipp Roesler said in a newspaper article at the weekend that an "orderly default" by Greece could no longer be ruled out. Roesler tried to take back the statement, but the damage had been done.

This came in the wake of the resignation of Juergen Stark, the European Central Bank's chief economist, who also opposes intervention on behalf of severely indebted countries.

Momentum is building for default and Greece's departure from the euro zone is something that will be both traumatic and precedent-setting for Greece, the EU and the international banking system.

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