Michael Pettis has a good post on what history tells us about the Greek crisis. One of his conclusion is that in these types of sovereign crisis, things take longer to pan out because the banks are reluctant to mark their books to market when that could make them insolvent.
Why did it take so long? Were the banks stupid? No, banks knew full well that they weren’t going to get their money back as early as the mid-1980s, but to have acknowledge this would have required them to set aside more capital to absorb the losses than most of them possessed. The recognition of the obvious had to wait nearly a full decade so that banks could build a sufficient capital cushion to absorb the losses.
So too with the European crisis. Much of the Greek debt is held by European banks, and they simply do not have enough capital to absorb losses on Greek debt, let alone if Greece were to be joined by Portugal, Spain and others. The banks will need first to rebuild their capital bases before they can admit the obvious, and this could take several years.
This pattern of not marking down assets seems to be a pattern for banks, and judging from some recent government actions, they have the full support of the authorities. While it might seem obvious that politicians are acting to protect many of the current elites, their actions are also occurring because Europe is acting on the play book developed during the last financial crisis, and that play book involved buying the surviving banks enough time to earn their way out of insolvency. Until there is some type of resolution, the weaker European economies will have to cope with both austerity and uncertainty.