Regular readers know that under the blueprint banks are suppose to protect the real economy from the excesses of the financial markets by absorbing the losses today on the debts that exceed the borrowers capacity to repay. Subsequently, banks can rebuild their book capital through future retained earnings and equity issuance.
Greece shows what happens to a country when banks do not do this.
For Greece, there’s little to hope for from today, which ever way it goes. The austerity package looks tough: 20pc reduction in the minimum wage; 15,000 public sector jobs losses; pension and spending cuts.
But it’s probably irrelevant anyway.
While Merkel and other leaders have focused obsessively on numbers, forcing Greece to reduce its debts and repay Brussels for its folly, they appear to have missed the country’s alarming economic, political and social collapse.
On Thursday, the Hellenic Statistical Authority said Greece’s manufacturing output contracted by 15.5pc in December from a year earlier and industrial output fell 11.3pc, having fallen 7.8pc in November. Unemployment jumped to 20.9pc in November, up from 18.2pc in October - a rise of 14pc in a month.
Away from the statistics, money and labour is evaporating as the middle classes flee the social and financial chaos.
The rest are spilling out onto the streets. On Friday even the main police union changed sides. “We refuse to stand against our parents, our brothers, our children or any citizen who protests and demands a change of policy,” they said.
And in April they will go to the polls and almost certainly demand change. The dominant Pasok party, which has been strongly pro-European, has seen its electoral support plunge from a powerful 47pc to a shocking 8pc.
But by that stage, perhaps Athens won’t be Ms Merkel’s problem anymore - she’ll have Portugal, Spain and Italy to worry about instead.