Martin Steward says Europe's financial system seems as ready as it will ever be for an orderly Greek exit from the single currency.

As coalition talks failed following the 6 May election in Greece, and speculation grew that a fresh vote on 17 June would return a decisive mandate for the anti-euro, anti-austerity Syriza bloc led by Alexis Tsipras, European institutions let out statements that appeared to suggest a new resignation to Greece's exit from the euro. Headlines screamed of bank runs and market panic.

Those headlines have overstated the significance of deposit withdrawals from Greek banks. And the response of the markets has been more nuanced than it first appears, too.

In equity markets, it is no surprise to see stocks like National Bank of Greece taking a dive - but that has seen a steady decline since late 2009. But more broadly, while Europe's banking stocks have given up much of the post-LTRO rally they enjoyed over the winter, they have yet to test the post-2008 lows they set in Q3 and Q4 2011. While iTraxx Financials indices indicate that the cost of insuring against bank defaults accelerated through the first half of May, again, this was a trend in place for some months already. It is beginning to look as though the worst was priced-into equity markets last autumn.

More support for this view might be taken from the interbank lending markets. A stark loss of confidence among European banks, such as that seen after Lehman Brothers collapsed in 2008, would have led to a spike in the spread of three-month Euribor over the three-month EONIA rate (the 'OIS spread'). In fact, that spread has been narrowing through the course of this year, from 0.96 basis points in January to less than 0.40 on 17 May.

This illustrates the story of LTRO. While it may not prevent most of investors' bank equity being wiped out, or their bonds being further subordinated in banks' evolving capital structures, it does seem to have removed the risk of a systemic banking collapse in Europe. The money will flow as long as the ECB can keep printing it.

The fingerprints of LTRO are evident in peripheral euro-zone bond markets, too. Spain's auction on 17 May went fairly well, with three and four-year bonds clearing at 4.4% and 5.1%, respectively. Its two and 10-year yields are testing their 2012 highs but remain well below their November 2011 limits. Moreover, a small blip in the bid/ask spread on the two-year cannot disguise the recent trend for that spread to narrow - suggesting that liquidity in Spanish paper remains healthy.

Similarly, Italian yields remained well-behaved - still significantly below the levels we saw at the beginning of this year - as did Portugal's. Indeed, the past few months have seen the inverted curve with which Portugal entered 2011 correct to something more normal, and the moves of the last few days, though characterised by bear flattening, are a long way from taking us back to that situation.

Of most concern to pension funds that have all but universally dumped peripheral euro-zone bonds in favour of domestic or Bund positions is the inexorable plumbing of new depths by Germany's two and 10-year yields, and the 30-year EURIBOR interest rate swap. The long-dated Bund tested 1.4%, and the two-year is now flirting with a negative yield, a la Suisse. The swap rate has hit a low under 2.2%.

Again, this appears to be a mix of money heading to safe havens - but also lots of liquidity trying to find a home. The swap spread at 30 years remains meaningfully positive, for example - and the trend has been upwards for most of 2011.

With a consensus emerging that Greece will leave the euro at some point this year, markets do not appear to have learned anything new that they had not taken account of back in Q3 of 2011 - with the single, positive exception of the ECB's willingness to act in the form of LTRO. Investors in non-financial equities may be thinking they got carried away in the post-LTRO rally - but corporate balance sheets remain strong, and the key risk there is global growth. European banks' balance sheets remain a mess - and investors will continue to bear the brunt of restructuring them.

But perhaps the past few days have shown us that bond and money markets are growing confident that Europe's financial system is as ready as it will ever be for an orderly Greek exit from the single currency.