Membership in the EU comes at a price. That price is a limit on deficits. This aspect of the EU treaty was meant to insure the solvency of its member nations and so support the Euro currency itself. No member can unilaterally revalue its currency as it is, by treaty, an abstraction of the net worth of the various member's ability to back it. This severely limits the unilateral options for dealing with sovereign debt by member countries, which in turn opened up unusual opportunities for member countries to be exploited by international banking.
While there are treaty limits on debt incurred by member countries, there are no constraints on banks lending to them. What evolved in the Greek sovereign debt crisis is a massive short opportunity on the Euro, had you known it was developing. And who would know outside of Greek government and the banking and finance community like Goldman Sachs or JP Morgan?
The early banking intercessions that propped up the appearance of Greek solvency were likely simple and direct exploitations of an economy in distress. The New York Times reported in February:
Despite persistently high deficits, a 1996 derivative helped bring Italy's budget into line by swapping currency with JPMorgan at a favorable exchange rate...In what amounted to a garage sale on a national scale, Greek officials essentially mortgaged the country's airports and highways to raise much-needed money...A similar deal in 2000 called Ariadne devoured the revenue that the [Greek] government collected from its national lottery.
These deals were undertaken as accounting camouflage for debt as a sale or leveraged investment to obtain or protect membership in the EU. In Greece's case, it got out of control. Like a pay day loan operation, the debt deadlines were deferred again and again, and the practical cost of that debt is as unfathomable as the derivatives on which it was leveraged. It has been the most massive and sophisticated pay day loan scam in history.
By treaty, the EU is now obligated to loan to and otherwise support the Greek government in order to keep it in the union. So by feeding the logarithmic debt appetite built on snowballing usurious opportunism by global banking, Greece became a liability for the entire EU. Now the errant child is in such duress that it must beg the more solvent siblings for a bail out. The question is, who would have loaned to Greece without the certainties of backstop involved in the EU treaty? Puts one in mind of the relationship between AIG and Goldman Sachs with the U.S.A. as guarantor of both of their counterparty positions.
It's a whole new business model contrived in the cauldrons of "financial innovation". It operates with all the cravenness of the fabled Mexican jail. Take a hostage through peri-legal means in order to extort the family of the prisoner/hostage. Greece is the hostage and the EU is the family.
Greece is not so much an example of a failed socialist philosophy as it is an example of exploitation as rich in deceit as was the defrauding of this nation's pension and endowment funds with fraudulently rated securitized debt instruments. Greece's debt may have remained under control except for the collusion of banking and Greek government that then ran afoul of EU treaty accounting misadventures. The lesson in this is that even socialists need to be mindful of pay day lenders in a global capitalist system that does not care about consequences other than personal profit. Greece needed a global consumer protection agency on the nation state scale.
Someone will make money off of Greece's bailout or default, and you can bet that Goldman Sachs has shorted the Euro.