If Greece fails to repay its debts, a domino effect is sure to hit major euro-zone banks. The bonds Greece issued at the beginning of this century were either bought by major euro-zone banks, or guaranteed by euro-zone banks or other insurers including the European Central Bank, which has provided Greece with various guarantees.

From this perspective, the Greek debt crisis concerns the future of the euro zone. What is most unexpected to Greece is that among the backstage attackers are Goldman Sachs and the two hedge funds. It means while offering advice to Greece for meeting the euro-zone requirements with so-called "creative accounting," those American financial institutions also racked up profits by attacking Greece and the euro.

System design flaws

In order to get loans from the EU and the International Monetary Fund, the Greek Government announced austerity policies: to cut expenditures by 30 billion euros in three years and slash the deficit-to-GDP ratio from 13.6 percent in 2009 to 3 percent by 2014. But this triggered protests and strikes by Greek trade unions. Analysts also worry that Greece may face mounting risks of depression with a reduction in public expenditure.

The sovereign debt crisis also widened the gap between periphery and core countries within the EU. Financial situations of periphery countries have been deteriorating. There was little difference between the interest rates of these countries' sovereign debts and that of Germany's 10-year government bonds, but after the crisis, the interest spread between Greece's bonds and those of Germany widened to 2.74 percentage points.

As the EU's core countries are world powers and the euro zone has a strong external position and a stable currency, the periphery countries have fallen into a trap: They can't devaluate their currencies to gain surpluses, nor can they easily start lending in the private sector or maintain current fiscal deficits. So, the periphery countries face a structural recession. They have to substantially cut their budget deficit, which is not helpful to economic growth in times of recession, but would deteriorate or prolong the recession. These countries will also see debts pile up with nominal prices and wages declining, and their real debts denominated in euros will swell, triggering a new round of defaults.

The sovereign debt crisis has unveiled a system design flaw in the euro zone. While there is only a single currency and unified monetary policy, but no unified government, all member countries make their own fiscal policies. In times of trouble, bonds of some countries will become targets of international speculative attacks. If countries with large foreign reserves lend money to those in debt, it will be easy for them to tide over the crisis. But the EU's largest country—Germany—is not so willing to do that.

Germans think they are fiscally disciplined people—they don't borrow money freely or spend extravagantly. The Deutsche mark was once the most popular currency in Europe. Now, not every country in the euro zone is as thrift as Germany, which means some countries are taking advantage of Germany's frugality. If they get into trouble and ask the Germans for help, isn't that essentially like Germany taking the blame for them? If Germany lends money to Greece, will it take the same course of action with Spain, Ireland and Portugal?

The euro zone itself was flawed from the beginning—it didn't establish a unified rescue mechanism when it was founded. If one country goes bankrupt amid the crisis, a domino effect will occur in the debt market, which could potentially lead to the collapse of the euro zone. Many international speculators made similar statements that the euro could exist for no more than 20 years—voices that rang the alarm bells of the euro zone's collapse for some time. EU leaders have realized they have to concentrate their efforts to deal with the financial market.

In fact, besides preventing wars among the EU countries, an important aim of EU integration is to gather the strengths of all EU countries to make the EU an important pole of the world. Politically, creating the euro aims at breaking the constraints of the U.S. dollar and even impeding the dollar's actions. Since 1999, the euro has risen to the world's second largest currency and tried to challenge the dollar's dominance. After the global financial crisis began in the United States, fears ambushed the U.S. debt market causing international investors to retreat. The euro zone thus became the "safe harbor" for foreign investors. But the euro's dream of contending with the U.S. dollar was finally broken by the Greek sovereign

debt crisis.