For the last 6 month, the travails of highly indebted countries in the European Union and Greece in particular has been the source of considerable turmoil in the financial system. In addition to increasing the cost of borrowing for Greece and other countries in a similar situation like Spain, Portugal, Ireland and Italy, the other impact has been to increase the overall systemic risk and push the world economy back into the 2008 depths.
The Greece story is particularly fascinating. Unlike other countries where banks made ruinous bets and had their capital wiped out, impacting lending and slowing down economic activity, the banks had no role to play in Greece. Instead it was the systemic lack of fiscal discipline, lack of enforcement of basic property and taxation principles and a proliferation of special interest driven that causes Greece to be on a slippery slope to sovereign bankruptcy and default. The inimitable Michael Lewis has written a highly entertaining but also illuminating piece on why this came to happen. Link is here.
Now what is very interesting and scary is that many of the ills mentioned here is present in many countries around the world. Talk about the aversion towards taxes, the large scale tax evasion, the rampant bribery and corruption in government circles. Seems scarily familiar to people from India and other developing countries. What do you think causes Greece to fail in such spectacular fashion (well, if it hasn't already failed, this article should convince you to "short" Greek debt).