There is now a very uncomfortable fact for the EU and especially the eurozone’s leading countries such as Germany and France to face: a year after getting a €110 billion bailout from the EU/ECB and IMF, Greece is essentially broke and can’t meet its debts as and when they fall due.

So broke is Greece and so desperate its current and future financial position at the moment that ratings agency Standard & Poor’s overnight suggested a minimum “hair cut” or loss for external and domestic creditors of 50% on their loans, or about €170 billion.

“Principal (capital) reductions of 50% or more could eventually be required to restore Greece’s debt burden to a sustainable level,” S&P’s said.

EU and IMF officials are to begin this week a review of Greece’s progress before deciding whether to recommend it receive a €12 billion instalment under its bailout loan. In the current situation that’s like discussing whether its advisable to give an addict another shot of whatever they get high on: it will only keep the buzz going for a while. Could the IMF and EU pull the plug and force Greece to go cold turkey and topple into collapse? Not from what everyone is now saying that a rescheduling of Greece’s debts is not being contemplated.

(Rescheduling and restructuring are financial code words for imposing losses on creditors, which in turn means problems for banks and other investors inside Greece and across Europe).

It was thought that last year’s handout, which is being spread over three years, plus continuing support from the ECB, would be enough to keep Greece solvent while spending is being slashed, taxes lifted and funds raised by selling off assets.

That was aimed at allowing Greece to start borrowing from the markets next year to regain the trust of investors, before being allowed to go it alone from 2013, but weighed down by the bailout debt. Already since last May we have seen Greece’s interest cost chopped and the repayment period on the bailout debt extended because it was clear that the country was struggling.

Now that has all been thrust aside in the past few days, finally as the eurozone and others finally face up to what the markets had been saying for months: that the country can’t keep its head above water now or into the foreseeable future without either more aid from its creditors, or a massive restructuring of its hundreds of billions of euros of external and domestic debt that would again plunge the eurozone into crisis.

In turn the rescues of Ireland (which wants renegotiations) and Portugal, (which is not exactly trying to strike a quick deal on its bailout) would be questioned, and fears would engulf Spain, again, and possibly whack Italy and Belgium as well.

The proverbial hit the fan last Friday when a group of finance ministers from the eurozone leaders (France, Germany Finland and other AAA rated economies) tried to hold a secret meeting with the EU to discuss Greece’s worsening position.

Good idea, but no one in Europe can keep a secret, least of all someone on the German side and leaked to the German news magazine, Die Spiegel, the fact that Greece was thinking to leave the euro. From that moment on the issue went live, denials all round that Greece was thinking of this course of action, but slowly it emerged that the real reason for the meeting was to find a way of getting a new deal in place, with Greece promising to try harder on tax evasion, etc, in exchange for a more favourable arrangement.

Now there are talks going this week about providing more aid, softened terms, extended repayment periods, anything to avoid the unpalatable fact that the only way for Greece to shake itself free from its black hole, is to default/restructure its €340 billion of debt, in a way that has the least impact on worried markets, but especially its domestic banks (Remember the external debt isn’t the only worry, the country’s domestic debt is also a problem because a reported 50% or more is owned by the country’s banks who would be crippled and out of business if the restructuring involves huge losses).

The question now for the EU and markets is: is it too late for Greece?

In a long editorial this morning The Financial Times (aka the bankers’ bible) told Greece and the rest of Europe what has to be done (“Athens must be put under the gun” was the headline on the editorial:

“Europe needs to decide which is costlier: the chaos of forced sovereign restructuring and the ensuing wave of bank collapses, or ever-growing holdings of Greek debt. If the latter, better force a restructuring while some Greek bonds are still in private hands. If the former — still the more plausible answer — the loan programmes must be updated in ways that encourage debt markets to reopen.

“Athens is so far from stable public finances that any slippage from the loan conditions is rightly interpreted as slippage in the will to see the program through. Faltering determination is evident on the ground. Laws may be passed but implementation often stalls. Efforts to raise tax revenues and crack down on evasion have disappointed. The government’s promise of part-privatisations and sales of public lands remains just that.

“Europe willing, Greek solvency may still be within grasp. But it is slipping fast. Athens has wasted time; its official lenders have been too overbearing. Fudges may have worked for Greece in the past; they will not this time. Europe should make clear it is willing to stop the funding and let Athens fall if it does not do its part of the job.”

Ironically the situation Greece now finds itself in was best crystalised by Standard & Poor’s the credit rating agency, in its latest and belated downgrade of Greece’s credit rating to next to worthless (B is the grade).

S&P cut Greece’s rating because of a possible debt restructuring, warning that its own “projections” suggested that merely rescheduling Greece’s debt repayments will not be enough and that private and state investors may only ever see half of their loans back again.

Fellow ratings agency Moody’s joined the (Greek) chorus saying that “a multi-notch downgrade is possible”.

Yields on 10-year-Greek bonds rose to 15.553% versus 15.350% last Friday. That’s the market telling us that Greece’s debt is next to worthless, the economy is a basket case and a collapse waiting to happen.

But some others in Europe wonder if it is about time that some of these banks and private investors who financed the expansion of the debt burdens in Greece, Ireland, Portugal, Spain and other countries without too many questions, copped some losses and not taxpayers of the eurozone countries and the populations of the stricken countries.