Who's at fault for the Greek sovereign crisis?

The current negotiation game in Europe is to pin losses on Greek defaults on the tax payers of another country. The difficulty of determining who should lose is determining who is at fault. I cannot put my thumb squarely on who is at fault.

Is Greece at fault for borrowing heavily? Or was Greece logically exploiting access to much cheaper financing by being a member in the EU? Regardless, Greece has lost credibility in the international financial markets. Unless Greece can adhere to austerity requirements and pay down the debt slowly, Greece will have a permanent black mark in Greece's credit history.

Are the banks and countries financing Greece at fault? These financiers (often German) made the choice of parting with their funds. The financiers may have expected the EU to never default on debt or Germany to bailout any peripheral country in trouble. However, just because the financiers had incorrect expectations does not mean they should not bear the consequences of their risks. Germany stands to benefit from Greece only slowly improving since uncertainty about Greece keeps the euro from appreciating against other countries. A weaker euro makes German exports look more attractive. Germany has an incentive to keep Greece on the verge of bankruptcy for as long as possible unless the cost of bailing out Greece becomes too large.

Are the taxpayers of any country off the hook? Well, the taxpayers are most likely going to bear any losses. Banks cannot bear losses because imposing losses on banks weakens the financial system important for production and growth. Tax payers are responsible for electing their governments, and tax payers also benefit in the short term from faster economic growth and more employment. The tax payers may be the most naive when it comes to making choices regarding the financial system, but naïveté is no excuse against suffering consequences.

Is the structure of the EU at fault? The EU is a monetary union but not a fiscal union. Member countries all have incentives to act in their interests at the expense of other countries. The prolonged discussions about resolving the EU crisis reflect this lack of fiscal integration since no EU institution controls the fiscal choices of a country. The fiscal requirements in the Stability and Growth Pact that were supposed to constrain fiscal choices of member countries were relaxed when Germany and France did not want to pay penalties in 2005. Germany and France were running excessive deficits under the definition of the pact for years. Once Germany and France waived the penalties on themselves, Greece and other countries saw an opportunity to ignore the fiscal requirements in the pact.