What happens in Greece will not stay in Greece. Even though the country accounts for only 0.5 per cent of the world's economy, the crash of that profligate nation will have global consequences. The financial irradiation from Greece may be the biggest threat so far to the euro and, indeed, to the European project.
Too much spending, too little tax-collecting and book-cooking are at the core of Greece's troubles. But this is not the entire story: Spain and Ireland are in trouble even though their public debt as a percentage of gross domestic product is much smaller than that of Germany. Italy, also in the financial markets' crosshairs, has high public debt but a lower deficit than the eurozone's average. Good fiscal management did not inoculate Spain against mass unemployment.
At the root of these countries' problems is the fact that their prices and wages have risen much faster than those of Germany and other eurozone members. This loss of competitiveness can no longer be compensated for by currency devaluation. Real estate bubbles in Ireland and Spain contributed to the troubles. Wage push and rigid labour laws across most of these vulnerable countries did not help either.