The fundamental problem here is that, in the decade since it joined the euro area, Athens has consistently run massive budget deficits, in violation of European Union rules, and then disguised them with less-than-honest bookkeeping. The responsible E.U. and member state officials essentially did nothing about it. . .The March 6th New York Times:
No doubt politicians from Berlin to Athens would have preferred to keep pretending that 16 countries could employ a single currency without an enforceable common fiscal policy. But the hedge funds called this massive bluff. Before retaliating, government authorities should factor in the possibility that the hedgies merely precipitated a crisis that Europe was going to have to face sooner or later.
Germany has the most fiscal flexibility among European Union members to help Greece, but public opposition to any assistance has been vehement. The debate has crystallized broader German misgivings about the European project into a public outcry. "It’s like a mosaic and the Greece crisis is the last stone," said Wolfgang Nowak, a former senior adviser to Mrs. Merkel’s predecessor, Gerhard Schröder, and head of Deutsche Bank’s International Forum. "More and more there is the feeling that French farmers, Polish farmers, Spanish infrastructure, that Europe is not a community but something held together by a German paycheck."As Arnold Kling says:
The first phase of financial crisis gave capitalism a bad name. This phase may give European social democracy a bad name.See MaxedOutMama for background.