The "Greek Problem" is really no different than what might be called the "California Problem" in the US. The 50 states of the US are in a common currency, yet each state has its own "fiscal policy." This is essentially the same as the situation in Europe wherein European countries (excepting Switzerland) are banded together in a common currency -- the Euro. Each country has its own fiscal policy.
Greece (and California) are eventually going to be unable to continue financing their outstanding debt. There is no scenario possible that would permit either Greece or California to fund their outstanding debt over any significant future time period. The only way to postpone a default in either place is for someone to step in and bail them out and let them continue to expand their indebtedness.
That's why politicians will soon be clamoring for the US government to bail out California, just as many are pushing the concept of Eurobonds in Europe to bail out Greece (and Spain and Italy and on and on).
These bailouts permit profligate countries to expand their indebtedness and postpone making the decisions that would be required to put their financial house in order. This only makes the impact of the ultimate default (which will come in any event) that much worse. Meanwhile, along the way, to entice the bailer to do the bailout, Greece and eventually California, will be asked to enact "austerity" measures that their populations will not support. Greeks will eventually reject the austerity measures and proceed to a default "workout" on their own. Three is no way that Greeks will, voluntarily, agree to the kind of austerity that the bailout folks will want to impose on them. Ditto for California.
In the US, there is a growing list of states that will join California in the rush to get a federal bailout. Essentially, the idea is to have states like Texas and Alaska, who haven't behaved stupidly with their spending, provide the money to bail out the delinquents like California, Illinois, New York, etc. This is the same idea as having Greece saved by the frugal German taxpayer.
All of this, as it takes place, rewards those who made bad decisions and punishes those who made good decisions. Ultimately, it won't work anyway as the bailer and the bailee will all be forced to some kind of debt default. Pity the poor bondholders who fall for all of this. They will be big losers.
But, there are other losers as well. The citizens of Greece and California and other profligate places will face economic paralysis as they put on the austerity straight jacket, which the bailers will insist upon. There will be a global economic paralysis brought on by the foolish idea that those who made good decisions should pick up the tab for those who made decisions. Foolish economic policy by the Eurozone and US politicians will cause a lengthy period of economic pain which will end with massive defaults through the Western economic structure.
It is possible that the citizens of Europe and the US might wake up before this situation develops too far along the bailout road. We shall see. The optimistic scenario is bolstered by the rise of the tea party and the focus of current debate upon the problems of sovereign debt. So, maybe, just maybe, the Western world will stop the bailout process before it goes too far and is irreversible.
