Greek Bailout: Moral Hazard Is Back and Even Bigger

The whole EMU idea comes down to two basic ideas: Germany wanted to gather political influence in the continent while others, mostly French, wanted to tag along on German productivity and relative frugality.

For a while it looked like a good marriage. Germany was enjoying increasing spotlight, inching ever closer to a U.N. security council seat and many other goodies. The others were enjoying lower financing costs not available before. But like all marriages of convenience, it works until it's no longer convenient.

But what made it bitter for Germans to swallow is the fact that Greeks, and probably several others, have been lying about their deficits and hiding their debt all along. It's one thing to willingly allow others to tag along in return for some reward; it's quite another to be lied to about it.

This time Greece may very well get bailed out. But it's doubtful that EMU heads, along with IMF, are ready to deal with the full scale problem, i.e., years of rolling debt and recession. They just hope the market will forget about it and bond yields will soon come down, which is very doubtful.

But the moral hazard from this bailout makes the U.S. bailout of 2008 child's play. If the Greek government has lied about its deficit and debt for decades, and they have defaulted repeatedly, and Greece is well-known for corruption and not paying taxes, what makes anyone to believe they'll suddenly change this time? What does the Greece bailout say to the other EMU members facing similar difficulties?

In the U.S., at least public outrage has a chance to get to the banksters and make them hesitate for a New York second the next time, maybe even through more functional regulation. In EMU, it's Germans against the rest. There will be no soul searching. There will be no gratitude. On the contrary, they'll be whining about the pain forced upon them.

And they would have a point. Just let them default and let EUR go. EMU serves no purpose any more, even for Germany.

Disclosure: None