S&P has recently downgraded Greece's outlook from stable to negative. In the agency's announcement it is stated that another haircut on the existing debt amount is expected, since the austerity policies, which have been implemented with a notable delay of 2 months during which Greece was without a formal Prime Minister, and the fact that Greece's GDP is expected to shrink by about 10-11% until 2013 will make the country need an additional 7bn euros this year and make its debt burden unsustainable in the future (not the distant one, 2013-2014).
This would in turn demand for another haircut in order to make it sustainable, which would mean that EU banks are going to need additional capital increases to conform to legislators' Tier 1 requirements. Guess what that means to most EU banks - and their host countries - which are still trying to find money to cover their losses from the previous haircut. Things are about to get a lot worse...
The Greek haircut was not a good idea. Anyone who disagrees with that clearly ignores economic realities. One cannot understand the rationale behind the policymakers' decision to cut Greek debt by 70%. A better alternative would be this. It is not economically difficult to achieve, however it takes a substantial amount of political will and nerve, something that most politicians in the Union do not possess. It is not late for a new plan, although it may be too late if we wait until another country fall off the cliff.
The downgrade increases the fear that some country (countries?) will eventually exit the euro. In my opinion individual countries should not be allowed to exit the Euro, both for economic as well as political reasons. In the end, we should either learn how to be a true Union, or just shut it down. There is no other option left. Either we are together or we are not.