The chances of Greece being bailed out in the true sense of the phrase are receding. Instead it looks increasingly likely that the country will need years of “life support” measures from the rest of Europe to survive without default. The country is fading from from recession to depression to become what is essentially a black hole, where the cost of keeping it alive and out of default may top the €240 billion  market (or close to $A290 billion).

The Financial Times reported late this morning that a third bailout for Greece is needed because the country is broke and faces few opportunities to climb out of its current hole for years to come.

As eurozone finance ministers met late in Monday night in Brussels to try and finalise the second €130 billion bailout, it has become increasingly apparent that the country’s finances are in worse shape and there is every chance it will need one or two more bailouts between now and 2020. That means the world economy and financial markets face the possibility of years of sudden leaps and falls in confidence as Greece staggers from crisis to crisis.

That in turn will undermine whatever confidence is happening in Italy, Portugal and Spain. Credit rating downgrades as we have seen since late last year, could become more regular for European countries and their banks and the European Central Bank could be lending a trillion euros to the area’s banks for years to keep countries and banks alive.

Greece would be reduced to a zombie state, sullen, dependant on the goodwill of Europe’s giants such as Germany, or it could decide it’s all to hard and default and to hell with it.

FT says that a “strictly confidential” report on Greece’s debt projections prepared for eurozone finance ministers reveals Athens’ rescue program is way off track and suggests the Greek government may need another bailout once a second rescue — set to be agreed on Monday night — runs out.

“The 10-page debt sustainability analysis, distributed to eurozone officials last week but obtained by the Financial Times on Monday night, found that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170 billion bailout.”

Reading the FT report and earlier ones on the country’s position, it’s clear that three more years of recession/depression would mean the country has been in the red for eight years, with every chance that could continue closer towards 2020. So the talks in Brussels have to get some sort of agreement to provide more aid to Greece, otherwise it is likely to default when a €14.5 billion bond redemption comes due on March 20.

In fact the paper said there was every chance that Greece would need ongoing financial support, so weak was its economy and so poor had been its adherence to previously agreed austerity measures under the first €110 billion bailout.

The report said the total cost of bailing out Greece could reach €245 billion euros. That was after the FT reported a few hours earlier that the possible cost had jumped to €170 billion.

In fact, the news is just as bad for the rest of Europe, for global financial markets and for banks in Australia (and home borrowers, small business, politicians and the RBA). It means financial markets won’t settle down, there could be periodic eruptions of volatility and blows to confidence, even as the global economy, led by the US, Germany and China, struggles back onto a growth path.

That will mean volatile funding rates for banks here and offshore and periods where we get rounds of complaints from banks about being under cost/revenue/profit pressures requiring higher interest rates.

The Financial Times said the report warns that “Forcing austerity on Greece could cause debt levels to rise by severely weakening the economy while its €200 billion debt restructuring could prevent Greece from ever returning to the financial markets by scaring off future private investors.”

Greece has failed to do what it committed itself to doing in May 2010 year and late last year. The economy shrank 7% in the final quarter of last year compared to the last quarter of 2010. It shrank 5% in the September quarter from a year earlier, so the plunge towards depression is accelerating, not slowing.