Charlie, I read Merkel’s comments a little differently. As you noted, she said that the top priority was to avoid an uncontrolled insolvency. The magic word there, I think, is “uncontrolled”. Greece is bust, and the terms of its July bailout (if implemented) will constitute a default even if everyone agrees to pretend that it doesn’t. Greece will default some more (it has to: the math cannot be denied), but the question is how and when. What Merkel is after is (essentially) a slow-release default, a process sufficiently soothing that it will not trigger a fresh round of panic. Her problem is that the mechanisms to allow for that soft landing simply do not appear to exist. And your-check-is-in-the-mail promises that that mechanism will soon be built are highly unlikely to reassure the markets.

Meanwhile as a reminder that the clock is ticking ever louder, the host of the ever-cheery Zero Hedge gives us this (his emphasis):

According to the Bank of Greece, household and corporate deposits declined for the 7th month in a row, dropping by €1 billion euros in the July. Since January 2010, total deposits have declined from €233 billion to just €187 billion, or €46 billion, or 20% of the entire deposit base. Once again, we make it very clear that no matter what the government does with sovereign tax collections, spending cuts and stop gap liquidity boosts, as long as the deposits outflow continues, nothing else matters.