Europe's Greek choice: Default or bailout

Greeks protested in Athens on June 29 when the Parliament approved more austerity measures to get more bailout money.

NEW YORK (CNNMoney) -- So Greece finally has its bailout money. But when that temporary financial crutch runs out in the next year or so, the troubled nation will once again face the very real possibility of default.

Greece doesn't have enough money to pay its debts, and rolling over its existing debt might not be an option, according to reports from the three major rating agencies.

McGraw-Hill's (MHP, Fortune 500) Standard & Poor's, Moody's Investors Service (MCO) and Fitch Ratings all define default in such a way that includes rollovers in certain situations.

Standard & Poor's reported Monday that the two financing options presented by the French banking system, which involve debt restructuring through the private sector, "would likely amount to a default under our criteria."

Stupid central banker tricks

One of the chief concerns of the rating agencies is that the new backers of Greek debt could end up being shoddier than the ones they're replacing.

Fitch reported that a debt exchange could result in default if the new securities are "worse that the original contractual terms of the existing debt and where the sovereign is subjected to financial distress."

Also, the French plan might force banks to take on impairment losses because of Greece's difficult financial state, according to Moody's.

Desmond Lachlan, resident fellow at the American Enterprise Institute for Public Police Research and former policy adviser at the International Monetary Fund, said the rating agencies were "operating very technically" in their analysis of Greek debt.

Lachlan said he expects the European Central Bank to accept Greek debt instruments as collateral, despite their low ratings.

"[The ECB bankers] seem to be indicating that they will accept Greek paper, even though it's rated for default," he said. "If the ECB didn't say that, it would be game over for Greece."

Greece's debt is set to mature from July 2011 to June 2014. The specter of defaulting is imminent, but not immediate, even though some of the debt is due this month.

Greece has enough money to continue functioning, at least for the short term. Member nations of the Eurozone and the International Monetary Fund recently approved the last $17 billion tranche from the $156 bailout initiated last year.

But even with the bailout, Greece will eventually run out of money. Fitch estimated, in a recent note, that "fiscal funding shortfalls" would occur in 2012, suggesting that the bailout is enough to get Greece through the rest of 2011.

The pain of Greece's fiscal crisis

The last tranche of bailout funding was approved on the condition that Greece take on new belt-tightening austerity measures, in addition to the ones imposed last year.

The original raft of austerity measures that were applied in 2010 raised the age of retirement to 65 from as low as 61 and toughened eligibility for disability benefits. Also, taxes were added to a myriad of products, including fuel, alcohol and cigarettes.

The new austerity measures, which include pay reductions for public workers, prompted thousands of protesters to crowd the streets of Athens, where they clashed violently with riot police.

Many of the protesters were blaming rich tax dodgers for their economic woes.

Tax dodging has been rampant in Greece, undermining the national budget, and reining in the tax cheats is a major focus of the new austerity measures.