The Greek fiscal crisis could have momentous consequences, but it is very simple. All of the countries in the Eurozone have enjoyed extremely cheap credit for the last decade. Before the euro, interest rates in Greece were often in double digits, which means that to attract investment the Greeks had to offer a very high rate of return, because investing in their inefficient economy was so risky. Interest rates in the Eurozone currently stand at 1%, a more appropriate level for efficient economies like Germany.
Because Greece has been allowed to share these low interest rates, it has been able to borrow money at much cheaper rates than it would have been able to on its own merits. It has been using this to expand social programmes rather than to improve its economy. In fact, its economy got spectacularly less efficient over the last decade, because credit was so cheap that there was no need to compete for it by being efficient. The Greeks then lied to everyone else about what they were doing; fine, so long as the money kept flowing. When it stopped because of the credit crunch, all hell broke loose.
The Greek government was basically operating a huge pyramid scheme: it paid its debts off by borrowing more and more cheap money. Now it can't borrow anymore, it has to cut the amount of money it spends on social programmes so it can repay its debt. Greece's woes could end in it abandoning its obligation to repay its debt, which could mean the end of the euro. Or it could end in social revolution. It could end in both. It is hardly the only country that faces these possibilities; this is the legacy of the decade of political illusions sustained by cheap money.
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