Luxembourg, a tiny but prosperous nation of 543,202 citizens, holds a position of power vastly above its weight in the European Union. It has provided three presidents of the European Commission, top members of the European Parliament and many top-level financiers who have been at the center of decision-making across Europe.

But unlike previous years, former Luxembourg Premier and new European Commission President Jean-Claude Juncker was welcomed to Brussels earlier this month with a scandal that threatens to blemish the shining image of the prosperous grand duchy.

On Nov. 5, the International Consortium of Investigative Journalists (ICIJ), based in Washington, DC, released a series of documentsdetailing how Luxembourg has been serving as a tax haven for hundreds of multinational corporations.

“These companies appear to have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes,” according to the ICIJ’s report.

Luxembourg’s business model is essentially helping companies steal money from European taxpayers. Juncker now faces pressure to resign as anger grows across the continent. The worst thing about Luxembourg’s policies is that they are entirely legal, if unethical.

While the revelations of incessant hoarding of riches in “treasure islands” (as tax havens are often called) is not new, it is important to understand the latest leaks in the context of the eurozone financial crisis, particularly in Greece, where austerity has wreaked havoc over the past four years.

Political Class

To understand the European financial crisis and the austerity measures that followed, we need to remember its origins. E.U. member states, especially those in the south, borrowed heavily from the markets in the past two decades, particularly since the introduction of a common currency, the euro.

When the 2008 crisis hit and Greece came to the brink of collapse a year later, these countries found themselves unable to borrow, because their banking systems overexposed to bad debt, and could not use currency depreciation to help with structural adjustment, because they no longer had their own currencies. And their weak internal markets were unable to fill the funding gaps.

The solution was simple, if controversial: The European Central Bank, International Monetary Fund and the eurozone would advance money to help the indebted countries handle their mountains of debt.

In return, Greece, Spain, Italy, Portugal and Ireland were asked to implement austerity measures, which translated into freezing spending and balancing their budgets to produce surpluses. They also enacted market reforms that would make them more competitive — simplifying their tax codes, opening up their markets to foreign investment, lowering wages, slashing welfare because it hampered competition and giving less protection for workers as wages were lowered and it was made easier for business to fire them.

But it did not work as planned. Even after the 2012 debt restructuring deal, Greece’s debt increased. Tax receipts decreased, unemployment skyrocketed across Southern Europe, and countries found themselves stuck in a downward spiral of revenue loss. The health and education systems began to fall apart. Greece achieved some primary surpluses but only through harsh cuts and overtaxation of the working and middle classes.

The wealthy elite of Greek society has so far refused to carry any of the weight of the crisis. As the number of people living below the poverty line rose, the share of Greece millionaires has increased. Big businesses reported unprecedented losses. Private banks had to be bailed out with public money — adding to the country’s ballooning debt burden.

For example, Luxembourg-based international private banking group EFG, in which the Latsis family (the head of which is Spiros Latsis, the richest man in Greece) holds a major stake, and its Greek subsidiary, Eurobank, appear to have hid money from Greek taxpayers in 2007, right before the crisis began. When the crisis hit, the bank showed losses, when earlier it funneled $87 million to Luxembourg to avoid taxation, and subsequently had to be bailed out from the public purse. Its subsidiaries later bought up public buildings when the government decided to privatize them under an onerous public-sector sale-and-leaseback deal.

PriceWaterhouseCoopers, which designed some of the Luxembourg tax schemes, employed a Greek official, Katerina Savvaidou, who until the scandal broke headed a state agency tasked with battling tax evasion. The biggest Greek multinational, Coca-Cola HBC, has been taking advantage of reduced taxes in Luxembourg and other similar schemes since the 1970s. Now Coca-Cola HBC, despite racking up billions of euros in earnings thanks to tax avoidance, is closing down factories and laying off workers in Greece, over losses the company blamed on overtaxation. Media’s silence

When the ICIJ revealed the scandal, many expected the Greek press to be furious and provide analysis and front-page coverage. But this did not happen, as Greece has no independent mainstream press to speak off. “No print, radio or TV outlet dared to name the implicated companies,” said Kostas Efimeros, the editor-in-chief at The Press Project, the only Greek outlet that covered these revelations, naming names of Greek companies and employees involved in the scheme.

“At The Press Project we decided to create a special, dedicated website to present the results of the investigation for companies like Eurobank (one of the four biggest banks in Greece), Coca Cola, Wind, etc., but also to highlight the corruption, since the minister of finance himself and the general secretary of finance are essentially implicated in the scandal.”

The press in Greece is largely beholden to companies that pay a lot in advertising and avoided mentioning sensitive names, including current Finance Minister G. Hardouvelis and Savvaidou. ICIJ’s only official partner in Greece, Ta Nea, carried only a small box on the story on one of its front pages, without naming any companies, burying much of the details inside the newspaper. Another Greek daily, Kathimerini, carried a short article in its Sunday edition, again without naming any Greek companies.

It is no wonder that since the economic crisis hit the country in 2007, Greece has fallen more than 50 places in the Freedom of Press Index, which spotlights the negative effects of conflicts on freedom of information and its champions. Greece is now 99th out of 197 countries surveyed by the journalism watchdog Reporters Without Borders.

But Greece is far from the only E.U. member embroiled in the tax scandal. PriceWaterhouseCoopers paid almost $940,000 to the British Labour Party’s shadow cabinet members, “to help form tax policy,” according to The Guardian. Just last year, Labour leader Ed Miliband vowed to tackle such schemes, warning businesses that “politicians — not companies — set the rules,” The Guardian wrote.

Luxembourg’s prime minister has so far refused to change his country’s tax regime and align it with the rest of the eurozone. Junker faced a grilling in the European parliament earlier this week. As MEPs call for his resignation, the controversy is putting the future of Luxembourg in the eurozone in question.

Still, for Greece, the real questions remain far from the high politics: The country is still reeling from the crisis, and multinational companies continue to refuse to reform their practices, demanding everyone else around them to change. The country faces a looming funding gap, and once again taxing the already squeezed middle class, shop owners and workers is the most likely source of income.

The scandal in Luxembourg is not the only one befalling Greece. For example, a massive scandal broke in November when it was revealed that George Karatzaferis, a far-right politician who was part of the 2011 coalition government, was hiding $7.4 million abroad, confirming the public’s widespread mistrust for politicians and financial institutions across the eurozone.

The gap between average citizens and the political and economic elite continues to rise. Europe must now unequivocally set an example by banning the use of tax havens and other such tax evasion techniques, which essentially constitute theft. If it takes removing from the EU some politicians or countries that refuse to conform, so be it. Otherwise, any mention of austerity as being the fault of profligate countries is automatically void.

Yiannis Baboulias is a journalist, writer and founding member of Precarious Europe. His work has been featured in the London Review of Books, The New Statesman, Vice, Open Democracy and The Guardian, among others.

Originally published by Al Jazeera America