Who Lost Greece?

A relatively insignificant southern European country threatens the very survival of the euro in its present form. How did we get here, and what lessons does Greece hold for the rest of the European periphery?

With Greece now literally in a state of economic and political collapse, and with the country on the cusp of an official debt default and an exit from the euro, it is not too early to pose some uncomfortable questions. Who lost Greece? How did we get to a situation in which a relatively insignificant southern European country threatens the very survival of the euro in its present form? And what lessons does Greece hold for the rest of the European periphery?
According to the narrative being spun in European capitals, the answer to these questions is both simple and unambiguous: It is all Greece’s fault. After many years of fiscal profligacy and living beyond its means, not to mention cheating on its budget reporting, Greece has brought its misfortunes upon itself. All that is now happening is that Greece’s day of reckoning has finally arrived and the Greeks are paying the price for their past sins.
To compound its difficulties, Greece has stubbornly resisted taking the strong corrective medicine that has been prescribed by those multilateral institutions charged with bailing it out—as Christine Lagarde, managing director of the International Monetary Fund, is wont to point out. In particular, Greece has stubbornly refused to get serious about tax collections and it has done everything within its power to avoid serious labor market reform.

Could Greece have overspent if its creditors had not over-lent?

Making Greece’s tragedy into a morality tale suits European policymakers well. It absolves them from any responsibility in the Greek fiasco. It also supports the story that European policymakers are now trying to sell to skeptical international bond markets that Greece was an exceptional case that has little applicability to the rest of the European periphery.

Read more: http://www.american.com/archive/2012/june/who-lost-greece