On Greek sovereign debt, taxes, and cheating...

Markets worldwide have been on roller-coaster ride recently, due to the downgrade of Greece sovereign debts and its ramifications on the stability and ongoing viability of Euro, should Greece default on its debts. European leaders hate to admit defeat, allowing an opening for IMF to step in to help bail out Greece; at the same time, quite some Euro members, most notably, Germany, do not feel compelled to automatically bail out Greece, without Greece feeling at least some pain.

That's all well and good. Afterall, Greek officials have recently been announcing its plan with painful austerity measures, resulting in protests.

A few things stood out though:

• Despite the poor track record, and the potential for defaults, investors are still rushing to the recent Greece bond sale. Perhaps there really is too much liquidity in the system worldwide, that investors don't care if the inherent risks could well outweigh the high yield that the latest Greek bonds are offering. Perhaps too, investors are all confident that somehow EU is going to come to the rescue, however reluctantly, to Greece, and underwrite its debts. Still, the bipolar messages from the markets - that Greece is dangerously close to default, yet investors would still lend to it - are exactly the kind of recipe for disaster, much like the underlying cause for the subprime mortgage crisis in US. Too bad, Euro is in a bind, and doesn't seem to have a choice, regardless of how bad Greece behaves.
• Which leads to the second thing about Greece. Granted that Greece is not the only country in Euro zone who fails the 3% limit of debts over GDP, afterall, big guys like France have failed the litmus test for years with no ramification, why in the world should Greece care?! But the fact remains, that Greece has been opening cooking its books, reporting false statistics about the true state of its economy for some two decades, yet no one would do anything about it. No one wants to spoil the party, and tell the emperor that he has no clothes on. The austerity plan from Greek officials is to try to bring the grey and blackmarkets (all the cash economy that generates wealth, not those reported on tax forms) out to the open. By some reports, the grey and blackmarkets in Greece accounts for at least 20-30% of the real economy. It would be hard, because basically everyone in Greece is lying and cheating on their tax forms, in some forms and fashion.
• Which brings me to the last thought about Greece. What the Greek officials had been doing, in lying and cheating on the official false statistics of the country's economy and state of health, is essentially the kind of lying and cheating that every other Greeks are doing. And if no one has confidence to really expect average Greeks to suddenly turn about and hand over their tax dollars, why would anyone have any confidence in the Greek officials doing so, by enforcing the austerity measures? Afterall, the Greek government never seriously attempts to prosecute any tax cheaters; neither would Greece, as a country, be seriously punished by not sticking to the published austerity measures. In essence, the Euro pact is all carrots and no stick. Everyone knows that Greece will be bailed out, one way or the other, all in the name of saving the face/ego of Euro.
  

Does that sound disgusting to you? It certainly does to me. I'm not an economist or politician, so I won't even attempt to offer any solution or insight to this whole mess. Since the inception of Euro, I have always marveled at how Euro, both as a currency and as a cohesion pack among the Eurozone members, could pull it together. I guess you could say, that I've never had the faith, believing how a continent as diverse as Europe, with so much differences in culture, languages, economy, and more, could be peacefully glued together, without ceding sovereignty. I still don't.

PS: I guess if I have been a German voter, I would have been voting against the Greece bailout as well, much as I was and still am opposed to the bailouts of banks and subprime mortgagees. If you want someone to learn, if you want them to understand that somehow their actions do have consequences, then you have to prepare to let them fail and suffer though it. Without that, you're simply staring down at a bigger disaster down the road.