Part of this assumption comes from the fact that many large European banks have made loans to Greece. If Greece defaults, will the shockwaves reverberate across the world? For example, it is estimated that French banks are on the hook for over $75 billion of loans. No wonder the French government is keen to try to put together a rescue plan.

At this point, investors have chosen to shoot first and ask questions later. Capital has been racing out of Greece to the tune of over €8-10 billion since November of last year. For a country the size of Greece, this is not an inconsequential amount. The only realistic way for Greece to stabilize its situation is to be able to cut spending, raise taxes and reform its economy. This is never an easy task at the best of times. Governments would rather focus on stimulating an economic recovery – not tightening fiscal policy.

Tax evasion is rampant, government spending is out of control and the public sector unions are driving a hard bargain before committing to any cost cutting efforts by the government. In addition, the announced plans for economic stabilization by the Greek government are being met with skepticism. To give some perspective on the level of tax evasion, Greece’s finance minister has stated that only 15000 people have declared income of over €100,000 a year and 90% of its citizens declare less than €30000 of annual income. This is hard to believe in a country of over 11 million people.

The difficulty facing the European Union is that the situation of the PIGS has left many to question the raison d’être of the European Union and by extension the Euro. Thus, this helps to explain the rush of international capital flows towards the US dollar. It is not a question of whether or not Greece is a pivotal member of the EU - it is only about 3% of the European economy. Rather the real question is: If Greece gets rescued, who's next? Portugal is not far behind Greece when it comes to solvency.

Even if this crisis is resolved under the most optimistic of scenarios, the Euro has been dealt a serious blow. Other governments that had sought to diversify their foreign exchange reserves into Euros and away from US dollars might have to rethink their options. Perhaps gold will come to the forefront again. At the very least, this should give the US dollar some reprieve from its long line of naysayers.