A sovereign debt crisis has firmly gripped the Hellenic Republic .A scepter of a sovereign default is looming large . Even though Greece may not be the largest and formidable member of the Eurozone , but a sovereign default would create a domino effect  and spook the international markets which are still bruised  and battered by the subprime crisis.

Taking stock of this impending crisis, the other Eurozone members convened an emergency meeting in Germany on July 21 2011. The heavy hitters of the Eurozone like France, Germany and Britain were urged to initiate emergency measures to address this crisis and  to deliberate on the eventual fate of Greece . At that point Greece’s herculean debt was to the tune of 9 billion euros . So it was staring at a potential sovereign default  without more money being injected by other Eurozone members . The consensus that emerged after the meeting was to extend Greece bailout by another year  . The bailout was worth a mind boggling 109 billion euros swelling Greece’s debt to a staggering 200 billions. The members also decided to augment the European Rescue Fund by another 200 billion dollars keeping in mind the requirement of such funds to avoid future catastrophes of the similar kind .

Greece’s Lone tenure was extended to 15 years from 7 years and the interest rate was slashed to 3.5% from 5%. The measures send out a strong signal that keeping the Eurozone intact was imperative for the members and it also went a long way in soothing the markets about Greece’s future.

Despite these measures, doubts still loomed large about the long term benefits of this deal .  An independent audit of Greece’s finances later that year revealed a worsening fiscal situation for Athens ,burdened by a pile of debt . It showed Greece’s needed another 150 billions to finance this debt and at this rate it will soon start eating into the funds set aside for Portugal and Ireland the other two nations on the cusp of disaster. An emergency meeting  was again convened and after protracted negotiations  the Euro members conceived of another plan . The private sector was directed to take a 50% cut on Greece’s bonds and another bailout package worth 100 billions was infused into Greece . These initiatives manged to  reduce Greece’s Debt to 120% of its GDP from an erstwhile 160% . The entire world took a sigh of relief and markets also rebounded believing a possible catastrophe has been averted .

Cut to 2012, the situation seems to be worsening for Athens . Instead of receding the yield on Greece’s bonds have only surged .The gargantuan debt that Greece has piled will only be repayed in case of a robust recovery which currently seems remote .

The stringent austerity measures, like hiking interest rates and cutting back subsidies , initiated by Greece have been counterproductive as it has actually shrank the country’s GPD by a painful 10% . A similar trend is forecasted unless there is a boost in public spending which is suicidal as Greece is already battling a mountain of debt . An internal devaluation measure ( lowering the nominal wages and price relative to other Eurozone countries) could have worked . But since Greece is enmeshed with other countries and its GDP is generally driven by consumer spending, such measures would pay little dividends

The only other recourse is to slowly disintegrate Greece from Eurozone . Eminent economists believe such a measure is not all unlikely at this stage but will come at a huge cost . Whether or not the other Eurozone members ,who have problems of plenty of their own , is ready to bear such a burden is another question . However, at this juncture other Eurozone members should ideally leave no stone unturned in keeping Eurozone intact as an alternate scenario will set an ugly precedent and the repercussions felt globally will be massive