You didn't really believe all that talk a few weeks ago about how the EU had "saved" Greece from default, did you?

The facts are a little more prosaic. The deal to bail out Greece with $170 billion always depended on getting the country's current bond holders to agree to take a better than 50% cut in their holdings and accept new bonds with a lower premium.

Not surpisingly, there haven't been enough takers among the creditors. This will lead to automatic cuts in the bond values rather than negotiated cuts. This will put Greece in a state of technical default and deny the government the EU cash that would save it from a messy default in two weeks when a large payment is due to current bondholders.

Greece won't have the money to pay their debts and that's the ballgame.

Telegraph:

Authorities in Athens are ready to enforce the controversial collective action clauses, or CACs, to impose the restructuring deal on all bondholders as the number of voluntary agreements look set to fall short of the required amount.

Credit rating agencies have warned they will declare Athens to be in default if the CACs are triggered which would be a dramatic culmination to a three-year rollercoaster ride for Athens, the eurozone and global markets.

While the markets have been ready for a Greek default for months, the move could leave Greece and its banks barred from funding from the European Central Bank (ECB). On Monday, Standard & Poor's declared Greece to be in a state of "selective default" which led to the ECB announcing it would no longer accept Greek government bonds as security for new loans.

The rating agency said its decision had been prompted by the threat of the CACs and the actual use of them is likely to tip Greece into actual default. The agency said it regarded the process as a "distressed debt restructuring".

Raoul Ruparel of Open Europe, the London-based think-tank, said: "Greece is likely to struggle to reach the targets for a voluntary agreement so the credit rating agencies are almost certainly going to see this as a default.

"What happens next is unknown territory.

The government needs to convince 95% of bondholders by Thursday or the automatic cuts engage. The Greek banking system will probably limp along for a while, surviving on emergency loans from the ECB but that won't last forever. Eventually, the system will collapse in a messy heap and Greece - already a basket case - might lose cohesion as a nation and experience the kind of unrest one might expect when desperate people are pushed to the limit.

It's hard to see how the worst case scenario can be avoided.

Hat Tip: Steve McCann