"The very determined attitude of the ECB is what makes the involvement of the private sector so explosive," Commerzbank AG analyst Lutz Karpowitz said today in a note.

The yield difference, or spread, between 10-year German bunds and Greek securities of a similar maturity widened to a record 1,413 basis points.

No other sovereign nation is graded as low as CCC by S&P, a spokesman said by e-mail. Moody Investors Service cut its rating on Greece to Caa1 on June 1, leaving only Ecuador as a worse sovereign risk. Not all countries' debts are rated.

"The rating agencies are now playing catch-up with the market," said Gianluca Salford, a fixed-income strategist at JP Morgan in London. "The market is pricing in a very high probability that there will be a credit event around Greece. The agencies are just catching up to the negativity that's already priced in by the market, not the other way around."

S&P also said it has a negative outlook on Greece's debt. "Our negative outlook indicates that a downgrade to 'SD' could occur if Greece undertakes one or more debt restructurings or maturity extensions on terms that constitute distressed debt exchanges as defined by our criteria," S&P said. SD is a "selective default." A restructuring would likely "result in one or more defaults under our criteria," it said.

Eoin Treacy's view The majority of Eurozone finance ministers will probably view a Greek default as enough of a threat to their own banking systems to make sure that additional bailout funds are allocated to the state. However this is only a short-term solution if the country is unable to payback the debt it has. The medium-term solution of some form of debt restructuring is an altogether more troubling issue from the perspective of those holding Greek securities, not least the ECB as well as German, French and UK banks. .

This table of CDS spreads gives us an indication of just how much the perception of risk has increased with regard to peripheral Eurozone debt. Greece's 1590, Portugal's 765 and Ireland's 738 basis point spreads are well ahead of even Argentina on 597 basis points and have increased by 104%, 158% and 221% respectively over the last year.

Greek, Portuguese and Irish bonds yields spread over German Bunds are accelerating higher. Bailouts for all of these countries have not been enough to stem the tide of selling beyond the short term. The current acceleration cannot go on indefinitely so by definition we are approaching a denouement. It is now less relevant whether these countries are capable of repaying their outstanding debt as well as the bailout funds because confidence is deteriorating at such a pace that investors are no longer willing to wait and see.

Since the rating agencies have stated that any lengthening of maturities would constitute a default, the only solution appears to be that holders of Greek debt will be encouraged to swap the current debt for new debt with a potentially much longer maturity. The ECB has stated it is against such a proposal but against a background of rapidly deteriorating confidence I wonder how serious they are. While the debt markets are pricing in a problem and banking shares have deteriorated, the Euro has been comparatively steady. This suggests that most investors believe a solution will be found but it will not be attractive for bond holders. Such a scenario would be consistent with the Eurozone's muddle through attitude to problem solving.