It seems tough to avoid.
First the facts,
1) The New York Times reports that "Eurostat, the European statistics agency, raised its estimate of the country’s budget deficit for last year to 13.6 percent of gross domestic product, above the Greek government’s recent estimate of 12.9 percent. The ratio of debt to G.D.P. stood at 115.1 percent, compared with the government’s estimate of 113.4 percent."
If the Greeks lost track of their accounts and this was an honest mistake that only Eurostat's forensic accounting uncovered, is is quite an indictment that the Greeks cannot even keep track of their debt. If they actually tried to hide more debts the situation is even worse. Either way, this turn of events does not look good.
2) The large debt immediately led to a lower debt rating. The same day "Moody’s Investors Service downgraded its assessment of Greek debt and suggested that more cuts might be on the way." Sure enough, only four days later Greek Bonds were downgraded to junk bond status and warned investors that "bondholders could face losses of up to 50 percent of their holdings" of Greek bonds. Government bonds as junk bonds is a novel concept in Europe. Lets just remind ourselves, a junk bond is a "non-investment grade, speculative grade bond. It has a high risk of default and pays a high interest rate to compensate speculators (not investors) to take on the extra risk. Stage 1 of a sovereign country's default is to have your bonds rated "junk" and be priced out of the normal investment asset market.
3) Greece desperately needs a cash infusion. But there are two key problems: other countries, or even the IMF, are unwilling to help if they has a sense they'll never see their money again. On the other hand strikes are shutting down the capital of Greece, as public services, schools and even hospitals were shut down to protest potential budget cuts or tax increases. While the airport is still open, the port near Athens is closed for days now. Not good for trade...4) that was not the only news, Eurostat also reported that it has to correct its estimate of the Irish government deficit to 14.3 percent, compared with the 11.7 percent figure submitted by Dublin in December... The Spanish deficit for 2009 was projected to be in line with estimates earlier this year, at 11.2 percent of G.D.P., while the forecast for Portugal’s deficit was 9.4 percent. Another New York Times report suggests that "increasingly, investors wonder if Portugal, Spain and even Ireland may not be able to borrow the billions of dollars they need to finance their government spending." "As the European Union and the I.M.F. debate the politics of Greece’s laying off civil servants or persuading its doctors to pay income tax, it is becoming apparent that the international community may need to come up with a much larger sum to backstop not just Greece, but also Portugal and Spain. The number would be huge,” said Piero Ghezzi, an economist at Barclays Capital. “Ninety billion euros for Greece, 40 billion for Portugal and 350 billion for Spain — now we are talking real money. Mr. Rogoff says that the I.M.F. could commit as much as $200 billion to aid Greece, Portugal and Spain, but acknowledges that sum alone would not be enough."
5) Not having enough cash on hand for a bail out would signal the end of the Euro as we know it...
Update 1: Martin Feldstein is willing to take bets
Update 2: Greek yields are through the roof. Here's the Financial Time quote:
Greece’s two-year borrowing costs are now higher than those of Argentina, at 8.8 per cent, and Venezuela, at 11 per cent, two countries that have been shunned by many international investors because of the mismanagement of their economies.
Investors said that the Greek bond market was now in effect pricing in a government default as two-year bond yields were trading more than 12 percentage points higher than German Bunds, Europe’s benchmark market.