The market value of Eurozone bank stocks has collapsed, down almost 80% from the high of 2007. In fact, Eurozone bank stocks are now trading at the same level as 17 years ago; that's 17 years of effort wiped out in just four years, thanks to the banks' careless assumption that they could put their entire capital at risk by investing in the bonds of Greece, Portugal, Italy, Spain, and Ireland. Greece may not have defaulted yet, but the market fully expects that, and more, to happen sooner or later. Banks' shareholders have suffered huge losses, effectively giving up a tremendous amount of their wealth to subsidize bloated bureaucracies in neighboring countries. The damage has been done, and it's all over but the shouting. The only thing we don't know yet is whether this mess will end up infecting the rest of the world.
As this next chart shows, the recent weakness in Europe has already spilled over into the U.S. equity market (and the bond market, as the first chart showed). Fortunately, the damage to the U.S. to date has been mainly reflected in market psychology, and not yet in any serious deterioration in the U.S. economy. 10-yr yields have collapsed, the Vix Index has soared, and PE ratios have plunged; but there is no evidence yet that the U.S. economy has entered another recession. Everyone is bracing for what could be a catastrophe, but it's far from certain that one will occur. Meanwhile, it is at least somewhat comforting to note that U.S. stocks have held up much better than their Eurozone counterparts.