Jan 24

From Greek to Europe
Greek and Iceland have similar national fundamental industry; similar debt-investing strategy; similar in predicament. However, they have one significant difference. Greek is a member of EU and it is a part of Euro-zone; Iceland, instead, is all by his own.
Being a part of EU particularly influence Greek, providing it pros and cons.
For the pros, EU, as a mighty union, injects positive mental implication to the troubled Greek government and people. When Iceland was worried about who could come out and save the world, there is no doubt that EU would take the responsibility when Greek debt is out of control. What’s more, because of the stable expectation of the Euro value, people won’t worry about the possible deflation in Greece, which increases its bond interest rate in responds to the decline of its credit evaluation. The existence of Euro-zone also makes it easier for Greek to attract investment from other Euro countries.
However, it is also the existence of Euro-zone that brings Greece negative influence when solving this crisis. From one respect, the 50 billion euro bond was issued with a 6.23% annual interest rate, which is the peak since 2001 when Greece adopted euro. At the same time, the bond interest rate in German is only 3.12%. That means, borrowing a same amount of money, Greece would pay more than two times as much interest as German. On the other hand, Greece cannot control its own interest rate, which in turn, forbids Greece decreasing the real value of its debt by inflating itself.
Go back to EU, it is also worrying about whether to help Greece or not.
If ECB acts and saves Greece by its rescue, then it will show the other debt-troubled countries a signal that EU would also act and save them when they cannot survive themselves. For Spain and Portugal, they might rely on the potential help instead of stimulating its self-recover ability. That would be a
If they keep silent instead, and Greek falls into insolvent, then that will be a disaster for not only Greek but all the other euro countries. The international influence of both euro and EU would be questioned. The euro-zone would drop into financial confusion. Once Greek was announced to be insolvent, there must be international speculation pouring into other debt-troubled euro countries trying to destroy the order of euro and make profit. The distribution of euro order may even cause the second global financial tremors.