“I completely rule out a bankruptcy of the Greek state.” That Jean-Claude Juncker, chair of the group of euro area finance ministers, had to stress this point to reporters today proves how serious Greece’s fiscal situation is.

Since ratings agencies expressed concern about Greece’s ballooning budget deficit—and Fitch subsequently slashed the country’s credit rating on December 8th to a few notches above “junk”—the country’s stock market has tumbled and spreads on credit default swaps have soared. Banks are bearing the brunt, as the rating on government bonds they hold drifts uncomfortably close to the point where the European Central Bank will no longer accept them as collateral for loans. Greek banks are enthusiastic users of the ECB’s refinancing facility compared to lenders elsewhere in Europe. Although shares rallied today as Juncker and other European leaders pledged support for Greece, if necessary, the domestic banking index is still down by around 15% on last week.

If the Greek government struggles to meet bold deficit reduction plans, more ratings cuts could be in store. Until then, as an article on our parent site argues [subscription required], the situation remains a “drama, but not yet a tragedy.”