10/30/2012 05:21 pm ET Updated Dec 30, 2012

Corruption Takes Center Stage in Greek-Euro Crisis

The Greek government, under international pressure to attack rampant domestic corruption, acted on Monday by hauling an investigative journalist into court. Costas Vaxevanis faces trial for having published the names of 2,059 Greeks who have accounts at the HSBC bank in Switzerland.

Greece is in the midst of a massive financial crisis, which is a prime cause of a European economic debacle that has contributed to a slowing of global growth. Corruption has been at the heart of the Greek tragedy. Tax evasion was a prime reason why Greek governments for years falsified the national budget accounts to hide a rapidly rising budget deficit. The euro crisis started when the truth emerged in December 2009 and it was evident that Greece had no way to finance its debt mountain on its own.

Vaxevanis' crime is that he published the "Lagarde List" -- a list of names that was provided to Greek authorities in 2010 by then French Finance Minister Christine Lagarde. She is now Managing Director of the International Monetary Fund (IMF), which is one of Greece's prime creditors. The Greeks took no action when they received the "Lagarde List" and recently former finance minister Giorgos Papakonstantinou confessed in parliament that the list had mysteriously disappeared.

However, an anonymous source found it, according to Vaxevanis, who published the names in a small magazine that he runs called Hot Doc. Despite his arrest, the prominent Greek newspaper Ta Nea published the full list itself on Monday. Both Hot Doc and Ta Nea emphasized that it was not illegal for Greeks to have foreign tax accounts, so long as they do not use them to launder cash from illegal activities or avoid paying Greek taxes. It is a list full of the names of some of the wealthiest members of Greece's business community, plus a few prominent politicians.

Greek leaders have repeatedly declared in public that they will attack corruption, but very few cases have been brought. Most recently, in an interview with the newspaper To Vima on his 100th day in office, prime minister Antonis Samaras said there will be "zero tolerance" of corruption. Samaras' focus on journalist Vaxevanis, instead of on some of possible tax evaders on the list, is both a domestic and an international political mistake.

The "Lagarde List" dominates the Greek media right now, assuredly damaging support for the Samaras administration and adding to public outrage over years of government mismanagement and corruption. The country has record high unemployment, it is in its fifth consecutive year of recession and basic public services are falling apart. According to a 2010 survey by Transparency International-Greece, 75 percent of Greeks thought corruption was getting worse, 92% of respondents thought Greek society was corrupted, and many said paying bribes for basic public services was routine.

But the Greek government's decision to try and go after the messenger, not the criminals, will add fresh tensions to Greece's immediate debt negotiations with its official creditors. They hardly need reminding after more than three years of agonizing bail-outs for Greece that the authorities have a propensity to make dramatic reform pledges at the negotiating table, but then fail to come to grips with the wholesale undermining of budget management by bribes by the rich to tax collectors to reduce their taxes and by bribes to top politicians to obtain public procurement contracts. Nobody is more aware of this than Christine Lagarde who is visiting European capitals now in search of a Greek crisis resolution.

I was an observer at times in both Athens and in Brussels of some of the most difficult negotiations, which secured new official credits and restructured debt-servicing schedules for Greece from the IMF and European governments, and massively reduced $270 billion of liabilities to private banks, insurance companies, hedge funds and other investors. Underlying so many of the negotiating rounds was a lack of trust by Greece's official foreign creditors in the willingness of the Greek government to pursue budget cuts, radical changes in tax administration, the sale of government-owned assets and the prosecution of corruption. In each of these areas the Greeks have failed to live up to their pledges.

Now, against the background of the "Lagarde List" fiasco, a new deadline looms. European officials suggest that a deal needs to be done by Nov. 12 or Greece may not be able to make some schedule debt payments. If that happens, then the Greeks may conclude they have no choice other than to exit the euro currency club. If they do, then they may default on their debts to the IMF, the European governments and the European Central Bank and create a huge new European crisis that is bound to shake financial markets profoundly.

Christine Lagarde's first stop in Europe was to Berlin to see Angela Merkel the German chancellor, as well as finance minister Wolfgang Schäuble, whose decisions on the Greek crisis are of paramount importance. Schäuble has never masked his distrust of the Greeks. Merkel knows that securing domestic political support in Germany for endless Greek bail-outs is becoming increasingly difficult and no doubt the "Lagarde List" will make it more so. She knows, as well, that a Greek default and euro currency departure would leave the kind of European financial crisis that would demand a massive call on German cash to stabilize conditions. She has also pledged to preserve the euro.

It is a long way from the courtroom in Athens that hosts Costas Vaxevanis to the arena of high global finance that Merkel bestrides, but the connection highlights the depth, the intractability and the complexity of the European financial crisis.