Two reasons: 1) Iceland has its own currency, so it has a lot more discretion over its monetary policy. 2) If Greece defaults, investors would assume that Spai

Two reasons: 1) Iceland has its own currency, so it has a lot more discretion over its monetary policy. 2) If Greece defaults, investors would assume that Spain, Portugal, etc. will also default. Hence their borrowing costs will almost certainly skyrocket, forcing them to default. This would probably cause bank failures. Being part of the Euro magnifies the contagion immensely. The Economist has had a few articles about default and they've recommended it, but managing the process so that it doesn't cascade is tricky.