Carl Heinz Daube, the head of German's debt agency Finanzagentur told the Euromoney bond congress in London that "if one member of the eurozone were to step out for any reason, this would be a collapse of the entire system."

What Daube failed to mention, however, is an even more serious issue: Greece, by any means, only represents the tip of the iceberg of what is a much wider sovereign debt crisis that could soon catch fire across most of mainland Europe, Britain and the United States. So, with or without a bailout of bankrupt Greece, the same fate could soon befall other too-large-to-bail nations.

Spain is faced with 450 billion euros (HK$4.76 trillion) of property developer debt, 50-70 percent of which is estimated to go into default. Santos Gonzalez, president of the Spanish Mortgage Association said: "A sector which doesn't generate enough to pay the interest on its debt is a sector which is bankrupt."

The safety of the UK banking system ranks 126th in the world, after war- torn Burundi and only four places above Iceland, according to the World Economic Forum, while its budget deficit stands at 12.6 percent of GDP, only topped by Greece's 12.7 percent and Iceland's 15.7 percent (a budget deficit of 3 percent is normally considered the maximum sustainable figure).

In terms of existing total national debt, though, Italy poses the highest risk, as its debt, at 117 percent of GDP (in Europe second only to Greece at 125 percent), makes up 25 percent of the entire sovereign eurozone debt. And the United States hardly looks better with the Federal Deposit Insurance Corporation expecting even more bank failures this year than the 140 of 2009.

Therefore, what is now happening to Greece could well turn out to be a dress rehearsal for what may follow in most of the developed world. And, in fact, this is exactly what was predicted in a rather insightful illustration on the major Western sovereign bond ratings outlook by Standard & Poor's in March 2005.

As this projection was made several years before the 2008 financial crisis had even started, one should safely assume that a similar projection, if made today (with staggeringly high bailout costs resulting from the crisis, and sharply reduced tax revenues since then), would only be worse, with the sovereign debt crunch likely to materialize even sooner than suggested at the time by Standard & Poor's.

It is most likely for this reason also that Bill Gross of pimco, the largest bond fund in the world, recently announced to reduce the fund holdings of US and UK sovereign bonds, warning investors most explicitly against investing in Britain "because British gilts [government bonds] are resting on a bed of nitroglycerin."

Accordingly, as an investor, you should stay well clear of long-term Western sovereign bonds. You should also stay clear of any form of personal debt, including mortgages, since the next wave of the financial crisis may turn out more serious than the last one. Cash, on the other hand, will be at risk of high inflation as well this time around, since turning on the printing presses would arguably be the only way out for bankrupt countries to escape the debt-trap.

Precious metals such as gold and silver and a number of other commodities can provide good protection against financial crisis and inflation, albeit it should be noted that they can be subject to high volatility as fear and confusion returns to the marketplace. A limited exposure to Chinese/Asian equities, as well as Asian convertible and inflation- linked bonds can also add value to a diversified investment portfolio, particularly given the undervaluation of the yuan and China's considerably stronger economic and financial position as compared to the West.

Martin W Hennecke is associate director,

Tyche Group Ltd

mhennecke@tyche-group.com