Europe had and has a fundamental problem in its dealing with sovereign bankruptcy, or insolvency as Alexis Tsipras puts it. The reality is that the government of a state cannot go out of business and make way for a new one. But, it's not uncommon for states to become insolvent. State collapse is not an option.

The way it is normally dealt with is inflation, which is kind of treated as default by economists but not really by financial markets and law. The print money which (A) can be used to continue operating and (B) reduces the value of the debt (sovereign and private) as the currency devalues. The 'C' is one that Greece really needs. It's also one of the hated (or loved) mystery components of "Keynsian" economics.

Inflation lowers salaries, and other pre-agreed contracts. It allows (for example) houses to sell at a lower (real) price without the "animal spirit" responses involved when someone sells a house 5 years later at a 15% nominal loss. There's debate in pedantic circles about whether this effect is indeed emotional or if it's related to mortgages being denominated nominally and other "rational" reasons.

Whatever the theoretically best way of understanding it (the two most vocal sides are Austrian vs Keynsian economists with actual politicians usually adopting a confusing mix of both vocabularies), it remains the case that the tried and tested (though certainly not free) solution is printing money.

The German solution is just to stay solvent. They manage to do it and they want other EU countries to do it too. This is a combination of strange optimism, stubbornness, fear of inflation and belief in Beaurocratic controls (which work better in German than in Greece).

This is the core of the issue. A State that runs its own budget (a fundamental EU principle) that does not control its own currency (a fundamental EU principle) cannot make it through insolvency.

One option that I quite like is letting states go into a sort of "bankruptcy." The banks would have to take the hit. This means the system must be robust against bank failure (which is easier to swing than state failure, but we're not there at this point. Too big to fail, Systemic risk, etc.) But, that doesn't prevent the problem overall. It prevents states from digging quite as deep as their interest rates rise sharply, but it doesn't completely block off the risk of failure.

I don't really have a solution. I don't like the Keynsian approach, but it is popular because it offers a solution to recession and state solvency at the same time.

We can see similar things happen in sub-state governments. US cities & States (provinces elsewhere) can go bankrupt. They are locked into spending on salaries, physical maintenance and such which require future revenues that were never realistic or haven't been achieved for some other reason (eg migration). They control a budget, they don't control a currency.

The EU needs to solve this in a way that doesn't make it happen again. bailing out Greece with an actual cash transfer would not achieve this. It would (A) make it easier for other EU states to get into the same trouble and (B) take the pressure off Greece to do what they need to do, become solvent.

Greece's governmental spending is unsustainable. Not of the currently declining tax revenues. Not on the pre-austerity revenues. Not even in a best case scenario. Inflation causing a (quite but extensive) reduction in government salaries, contracts, pensions, etc. is not an option in the EU context, but it may not have been enough anyway.

It's actually quite scary. I have no idea how they solve this. I have no idea how the EU gets "fixed."

I use Keynsian quite loosely. It's only tangentially and perhaps spiritually related to John Maynard Keynes the person.

Printing money doesn't always work either. Hyperinflation can destroy the State. Borrowing in foreign currency (as the poorest countries must do) takes away the option.