Euro optimism is once again gushing through the system on the hope that the debt crisis could be wished away with a nod by German Chancellor Angela Merkel or with a wink by the Bundesbank in direction of the European Central Bank, which is dying to print unlimited amounts of moolah to buy sovereign bonds—and old bicycles, if it has to—in order to force yields down for debt-sinner countries like the US Spain and Italy.

There is even hope that sudden German “flexibility” might solve the Greek debacle when Prime Minister Antonis Samaras heads to Berlin for his session with Merkel, based on indications in Germany that those with the power to say “no” are getting cold feet. But there was an incident in Greece that they should bear in mind.

It started Friday on the island of Hydra, a tourist spot of 2,700 souls. Officers of the financial police checked taverns, bars, and souvenir shops for tax violations. At a seafood tavern, an inspector discovered that patrons weren’t given Value Added Tax receipts, though required by law. An old trick: cash income remains undeclared and disappears; the VAT, though collected from customers, also disappears rather than being turned over to the state.

To investigate the case, the owner was taken to the police station, where she fainted. So she was taken to the hospital under guard. Her 25-year old son who worked at the tavern and copiously insulted the inspectors was also arrested—the straw that broke the camel’s back. Enraged, people threw rocks and firecrackers at the police station, shut off water and power, and demanded that the guy be released. Others blocked the port to prevent ferries from docking so that police couldn’t transfer him to Athens. Some forced their way onto a ferry and scuffled with the crew.

The next morning, riot police from the mainland made their way through the shouting people to the police station and freed the officers of the financial police holed up in there. The owner’s son was released because he wasn’t the owner; he claimed he’d planned on issuing receipts to his patrons, or whatever. On Sunday, his mother was taken off the island. The tax revolt in Hydra came at an inconvenient time: just before the all-important meeting in Berlin. So the Greek government was quick to condemn the revolt.

But tax fraud is pandemic in Greece. The financial crimes squad (SDOE) announced today that 4,067 taverns, bars, souvenir shops, and the like on 46 islands and in prominent tourist locations on the mainland had been checked between July 6 and August 19; of which 55.7% had committed violations. It’s been getting worse, in tandem with the economy. Last year, violations were found in 53% of the establishments. And there had been other incidents of revolts, writes Angelos Stangos:

On Lemnos in 2009, outraged business owners tried to push a group of tax inspectors into the sea, obviously in an effort to terrorize them into not running another inspection on the island. The practice has manifested itself in a variety of forms over the years, with a rich array of excuses presented as to why certain people should be allowed to get away with not paying taxes.

Tax fraud from the bottom to the top of society is one of the causes of Greece’s financial problems: the money just isn’t coming in. Now, costly promises politicians made to their voters have to be broken. For years, Greeks benefitted from the artificial manna of cheap euro debt and European Union funding, but the system has run into a wall—and Merkel has an opportunity to decide if taxpayers in Germany and other countries (including the US through participation in the IMF) should fork over endless billions to fund benefits, services, and boondoggles that Greeks themselves refuse to pay for.

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