Greece is asking for a diluited plan to to re-align its debt within the agreed parameters (Greece Faces New Pressure on Cuts) and this does not surprises me.
There are two main factors to consider. Firstly, sovereign debt is not backed up by any collateral. It is like if the bank would not be able to seize the property or any other assets belonging to an insolvent private debtor. That is, you do not pay the mortgage ans still can keep the house!
Being very imaginative, still I cannot find strong enough motivations for the Greek citizens to give away about almost two annual salaries ($26,600 to pay a debt of $50,792) to honor their own government failures, nor I would try to find one if I were them.
The second main problem, is related to the lack of governance. Specifically the absence of a mechanism for a country in the Union to fail. To my knowledge, this central issues is surprisingly is not getting enough emphasis in anyone’s agenda.
The European Union is like a dysfunctional family in which, no matter what, members have to cope with each other, including occasional financial support, because they are, well, family.
There is no easy way out. An option would be to stop throwing bad money after bad money and bailing out the European banks to prevent contagion. Greece, would be returning to the drachma with more chances to repay its debt by using monetary policy instruments. The Economist pointed out, this is not a perfect solution as might cause panic in the markets.
I would argue, however that the panic is more generated by the lack of confidence in the institutions and their inability to cope with these cases, not in the Greek issue per se.
Politicians, therefore must re-focus their priorities and work to address fundamental issues related to the governance of the Union. If they were successful in demonstrating commitment, markets would be indeed reassured and future crises contained.