Trapped in the euro, Greece is both unable to devalue its way out of (immediate) trouble or, it increasingly appears, pay its bills. The markets are getting ever more nervous:

Jan. 27 (Bloomberg) — Credit-default swaps on Greek sovereign debt surged to a record on concern the government won’t be able to plug the largest deficit in the European Union, a day after it priced 8 billion euros ($11 billion) of bonds. Contracts on Greece soared 48 basis points to 373, according to CMA DataVision. Swaps on Spain rose 17 basis points to 127, Portugal climbed 18.5 to 149 and Italy was up 10 basis points at 114, CMA prices show.
The European Commission said today that Greece hasn’t done enough to rein in its deficit that reached 12.7 percent of gross domestic product in 2009. Greece denied a Financial Times report it’s wooing China to buy as much as 25 billion euros of bonds. “Who’s going to lend money to them next time and at what price?” said Gary Jenkins, head of credit strategy at Evolution Securities Ltd. “What’s happening is very negative and could lead to a vicious circle.”

Pushing through the sort of austerity program that will be needed to make the numbers add up will, given the realities of Greek politics, be very, very tricky. On the other hand, Eurozone authorities (and, more importantly, the Germans) are still insisting that no bailout is coming Greece’s way, but can they really afford to let the country fail?

And then there’s Portugal. And Spain. And so on.