GREECE AND ''MORAL HAZARD''

''..“It is one thing if you are in the middle of a systemic crisis. Then you can’t allow anyone to fail and don’t worry about moral hazard,” says Mr Gros at Ceps in Brussels. “Now we are out of the woods and it may be a good time to reduce moral hazard.” In a research note last week, Deutsche Bank economists wrote that Greece’s continuing violation of the rules “may have changed the minds of EU authorities ... We believe that they may have to set an example for other countries in trouble”.

Greece is not a terribly important part of the greater E.U. economy, so worries about systemic reverberations from punishing Greece would be somewhat slight.

I don't know what's going to happen -- it's not even clear to me what the options are at this point -- but this story certainly bears watching..

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''..What will happen next? European finance ministers on Wednesday issued a fresh reprimand to Greece, pressing ahead with a process that could lead to financial sanctions. One possibility would be for the Commission to withhold “cohesion funds” meant to help Greece catch up with richer countries.Leaving the eurozone is not an option for Athens: the cost of servicing foreign debt would simply escalate. Beyond that, Greece’s fate will depend on the reaction in the markets and actions taken by Athens.Nor is timing on its side. The eurozone has a “no bail-out” clause, which prevents collective liability for debts incurred by a member. In February – when the crisis was at its most intense – Peer Steinbrück, then Germany’s finance minister, admitted that in the worst case “we would have to take action”. That eased pressure on the weakest members, including Ireland. But Mr Steinbrück has since been replaced and his promise now carries little weight; in the eyes of conservative European policymakers, it increased the risk of “moral hazard” – rewarding bad behaviour...'' F.T.'' read more..