Deepening concerns that debt troubled Greece might default and increasingly strident comments by several politicians in Germany about that possibility helped send European markets stocks sharply lower on Monday, raising worries about the sector's health.
The Stoxx 50 index of blue chip European shares dropped 2.6 percent with many of the continent's leading financial groups, such as Deutsche Bank and BNP Paribas, at one point falling as much as 11 percent on worries over their exposure to potentially bad European debt.
Senior German politicians ratcheted up tough, almost threatening rhetoric over the Greek crisis, raising possibilities once thought taboo.
Christian Lindner, the general secretary of the Free Democrats, the junior coalition partner in Germany, told ZDF TV that if Greece maintains its strict austerity measures it would continue to get European bailout money. But he added that Greece may also decide to leave or be pushed out of the 17-member currency block.
"If the Greeks are unable or unwilling to see through their austerity measures, then state insolvency – or indeed – leaving the Eurozone cannot be ruled out," Lindner said.
Over the weekend, the Germany economy minister and leader of the Free Democrats, Phillip Roseler, added that to stabilize the eurozone, "an orderly bankruptcy of Greece" might be necessary. He also said there should be "no bans on thinking" in resolving the euro crisis, and "I include in that, in perspective, an orderly insolvency if ... the necessary instruments are available."
Even some members of parliament in Chancellor Angela Merkel's own party – the Christian Democratic Union – were taking an increasingly tough line.
The strong words are, in part, meant as pressure. But they also reflect deep concerns in Germany that Greece may eventually undergo a full or partial default and that a second bailout of Greece, which is underway, will prove inadequate to stem the crisis.
Merkel's spokesman, Steffen Seibert, said Germany is "confident that Greece will be in a position to continue consistently along the road on which it has embarked." He noted that current treaties don't foresee either a voluntary exit or expulsion of any country from the eurozone.
"Our clear aim is to stabilize the eurozone as a whole, in its entirety," Seibert said.
Defaults On The Horizon
On Monday, traders bought up insurance against a default on Greece's government bonds, suggesting they believe a bankruptcy will happen at some point.
Jurgen Michels, chief Euro-area economist at Citibank, says the size of the European rescue fund will very likely have to be increased. He says talk of eurozone defaults in the next year or so is simply realistic.
"We'll probably also have to see defaults," Michels says. "Greece, at the end of the day, is likely to have one and it's also likely to happen for Portugal and Ireland."
Michels says such a default would be a massive financial shock, but adds that preparing for it now will lessen the blow.
Professor Hans-Werner Sinn, president of Germany's Center for Economic Studies at the University of Munich, told reporters in Berlin Monday that if it is done in an orderly way, bankruptcy for Greece may be the only way for Europe to start to move out from under the debt crisis.
"Insolvency does not mean complete ruin and demise. Insolvency allows the off-loading of debts, a fresh start, a liberation," Sinn said. "But debts are not Greece's only problem. The other major problem is a lack of competitiveness within the Greek economy."
Sinn also said that Greece has been effectively bankrupt since last year's bailout that their insolvency has simply been deferred by a series of ineffective, European political measures.
With reporting from NPR's Eric Westervelt. This story contains material from The Associated Press.