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Last July 23, the Committee of European Bank Supervisors (CEBS) published the results of the stress tests given to 91 banks across the region, which represented 65% of the European banking sector.

Given that the euro was dropping to record-lows faster than The Last Airbender’s movie ratings, the better-than-expected results did a lot to blast the euro up the charts.

With only 7 minor banks failing the dreaded tests, investors busted out their bottles of Johnny Black and celebrated, completely ignoring those who had doubted the validity of the test. But of course, after every party, there is the inevitable hangover…

It seems that naysayers are stepping up to the plate and letting themselves be heard. In fact, earlier today, the trash-talking of the EU stress tests got so aggressive that the EURJPY dropped by 70 pips EURUSD dropped by 75 pips! What’s up with that?!

Apparently, the results of the recent stress tests were not as comprehensive as first thought.

Contrary to the purpose of the stress tests, some major banks fibbed a little bit on the important information related to their government-debt holdings.

A smart economist dude from the Royal Bank of Scotland also found out that some of the major banks tested in the stress tests had far more sovereign debt when compared to Bureau of International Settlements (BIS) figures.

Barclays, for instance, excluded as much as 6.3 billion GBP in its government-debt exposure!

In defense of European banks, they were just doing what the CEBS told them to do. Still, this omission of information (wow, it rhymes) doesn’t sit well with me. It feels like we’ve been duped into thinking that these major banks were less at risk than they really were!

With all this news that European banks are holding on to risky business, some investors are beginning to fear that a sovereign default could be the match that sparks a European-wide fire sale.

If one country, say GREECE were to bust, then it may just cause people to stop and think, “Maybe those stress were too lenient… I better take my money out and put it somewhere super safe… like under my pillow.”

It’s no surprise that sovereign default concerns are popping up. Just look at the yield differentials on Greek and Irish bonds.

The spread between Greek and German 10-year bonds now stands at a redonkulous 8.9%! Meanwhile, Irish yields rose like Apple stock when S&P downgraded them just a few weeks back.

Heck, even banks didn’t want to their money in other banks! This past June, European banks deposited more in the ECB than they did in October 2008, when this whole mess was just starting!

Slowly, more and more uncertainty is creeping into the markets. If we continue to see more news that investors are losing confidence in the eurozone, we may start to hear whispers of the demise of the euro.