Reports coming out of the East and Europe this morning paint a dismal picture for Greece. The Euro had already slipped to a 10 year low against the Yen and a six month low against the dollar in overnight trading. Bloomberg thinks Germany might give up on Greece because a Greek default is probably inevitable.

Two banking bosses and policymakers, one from the Royal Bank of Scotland and another from Chuo Mitsui Trust and Banking, pretty much said the same thing, word for word:

The outlook for Greece is almost completely unknown. It’s as if policymakers are starting to prepare for that [a default].

In hindsight, I don’t think many people will be that surprised by this news because we should have expected that things would get worse before they could get any better.

The better question we should all be asking is how bad will it be if it happens, and, will a Greek default cause a crisis of confidence in Italy, Spain, and elsewhere?

Basically what’s going on now is that senior politicians in German Chancellor Angela Merkel’s center-right coalition started talking openly about a Greek default.

Also, Juergen Stark, a German, has quit the European Central Bank’s executive board over his opposition to the ECB’s purchases of bonds from debt-laden countries.

Apparently there is now major disagreement among top policymakers on how to tackle the region’s debt problem and the German’s are said to be looking at how to protect their banks from the inevitable.

Naturally Greek Prime George Minister Papandreou remains positive and said in a speech yesterday that “We will remain in the euro [and this] means difficult decisions.”

[Source: Bloomberg]