This added to doubts about their public finances. Once again, the banks were at risk; this time because they had many government bonds on their balance sheets. On top of that, government bonds are a key benchmark for borrowing costs in the private sector.
When markets arrive at a critical assessment of a country’s public debt, they put a risk premium on the private sector of that country. In this case, Greek companies were suddenly faced with much higher interest rates than otherwise identical German companies. A financial market that had grown together over years broke apart; it became much more fragmented.