European Union leaders will meet tomorrow to discuss the future of Greece but it is likely that talks will extend into the long run as a consensus on what should happen next won't be easy to reach.

The repercussions of a Greek default are already being felt as the rating agencies have signaled a hard line stance on developments.

Greece, Ireland and now Portugal have all suffered downgrades. Meanwhile the European Central Bank has warned that if Greece defaults, it will no longer have access to funding.

According to a Reuters report, the leader will be discussing three options that include a bond buyback of Greek debt and public sector credit enhancement.

A second option would include the issuance of new 30-year Greek bonds to replace existing debt in a swap operation. Both of these options, however, would likely still result in a downgrade to selective default.

A third option also being discussed is based on a tax imposed on the financial sector. It would involve an agreement with private banks that have large holdings of Greek debt to maintain exposure. This third option would be unlikely to trigger a default said the Reuters report.

On the U.S. side, which is also grappling with its own drama unfolding over the debt ceiling, the uncertainty added by Europe has created volatility in pricing. This uncertainty is also likely to remain over the summer months if the Greek issue remains unresolved.

"No one wants to sell and leave money on the table if in fact this is the start of something bigger," said Jesse Litvak, a managing director at Jefferies & Co. "Bid Offer spreads are still pretty bad. We still need a resolution to the debt ceiling in the immediate future, and I think Europe is going to be a longer term issue. But rest assured, if 1400 SPX starts becoming a reality (Corporate Earnings so far have killed it this earnings season) non-agency prices will melt higher."

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