The recent downgrading of Greek, Irish and Portuguese debt -- with Italy and Spain in the wings -- could hurt banking throughout Europe, according to BlackRock. 

The European Union, International Monetary Fund and European Central Bank “could not support almost half of the European bond market,” if Greece actually defaulted and instability spread. 

Any long-term political solution would require all 17 Eurozone states to agree, just as Europe enters two years of elections. Some $365 billion in debt is coming due in the short term.

Politicians are reluctant to write down the value of banks and the ECB, which are holding the uncertain sovereign debt.

“Sovereign debt was until recent years a type of high powered money substitute,” Black Rock wrote in a Monday release. But investors are becoming reluctant to regard sovereign debt with such confidence and have begun to regard it as a “credit rather than an interest rate play. “

BlackRock has developed its own assessment of country bonds. Going well beyond the usual measure of sovereign risk, the debt to GDP ratio, the new index weighs in demographics, per capita GDP, bond terms, the chance of inflation, and currency strength, among other factors.