German Banks flee Greece

Today the Financial Times reported that German banks have cut their exposure to Greek debt, going against earlier promises that there would be no change in their exposure to the country.  As things start to look bleak, the banks do what they have to in order to limit losses they may not be able to afford.  This could stem into a larger issue as banks across Europe are holding sovereign debt of many of the countries in trouble.  This could limit many banks willingness to lend and slow down the euro-zone from its recovery, especially in the face if raising rates.

The ECB hinted that it will raise rates at their next meeting, but the prospects of further increases from there (currently at 1.25% said to go to 1.50%) may be further off.  This could be beneficial to the euro-zone as a whole should interest rates not get out of hand.  The raising of short term interest rates to 1.5% will ring a bit more normalcy to the yield curve and allow risk to be properly measured, while not increasing too far as to make borrowing too expensive.  It is still too early to tell but should that work for Europe, the US should pay close attention.