"The Greek Financial Crisis" for Dummies

Little Greece has dominated the financial news.  Why?

The Greek tax collection system is broken. And the Greeks are notorious tax dodgers who simply don't pay their taxes and don't trust either their neighbors or the bloated government. They have already defaulted as a nation several times in their history.  The Greeks tend to see themselves as the victims of a new form of "German occupation" via austerity measures being imposed.  As a result of austerity, the Greek unemployment rate is 19%, up from 10% in 2009, and the country has plunged into a deep recession.  Nearly 50% of young Greeks are unemployed. Historically low crime and suicide rates are suddenly on the rise.  As of January 5, 2012, Greek 1-year bonds had hit an eye-popping 369% yield, making it virtually impossible for Greece not to default. The general public in the rest of Europe are completely unaware that they are paying these rates, and that this is why the EU is slapping on carbon taxes, new VAT's, etc. It is all going down this interest payment black hole. Who gets the cash? The very same bankers who cooked the books for Greek EU membership in the first place.  

Incidentally, Angela Merkel had previously worked out a scheme in which holders of Greek bonds—largely French and German banks—would voluntarily accept getting paid only 50 percent of what they were owed, with the voluntary nature of the agreement underscored by strong pressure from the French and German governments. A deal was done on those terms—partial EU bailout plus partial default plus everyone pretending there's no default—and then the details were kicked down the road. But the details haven't yet been nailed down, and in the interim many of the banks who owned Greek debt have quietly sold it to hedge funds, often based in London, who are less vulnerable to quiet regulatory coercion. And those funds are betting that if they "play chicken" and refuse to play nice, ultimately Germany will pony up the full bailout.  That's a dangerous bet, especially considering the mood of the German citizens who DO pay their taxes.

The real question is not whether Greece will leave the Euro and face an economic collapse and slow recovery, but when. Some predict this will almost surely happen within three months unless there is some dramatic (and unlikely) action to tighten the monetary union by Germany and the rest of Europe, coupled with even deeper austerity measures (equally unlikely) being effectively implemented in Greece.  The real concern of the other Europeans is not Greece's economic collapse, but whether it will cause a domino affect with other countries like Spain and Italy. And if this happens, some believe it will result in a complete unraveling of the Euro-zone economies, abandonment of the Euro, and a corresponding decline in Western civilization--an ominous prediction. Somehow, I personally would like to be a little more optimistic than this.  It's possible that what happens in Greece may finally scare the other countries into doing everything they can to avoid it, including possibly even agreeing to a tightening of the monetary union.  Greece's default might even be so highly anticipated now that it will be a non-event either way.