Among the many things we have learnt from this crisis is that governments and financial markets find it difficult to understand each other. Governments cannot grasp why the markets lose confidence in the state of public finances so quickly and regain it so slowly, after a long period of fiscal consolidation. The markets, for their part, are mystified by the failure of governments to take simple and timely steps to sort out the problems they face.

To tackle the problems of public finance, one of the measures that many believe should be adopted in some developed countries, particularly in Europe, is to default on or restructure public debt. Not a day passes without a suggestion of that kind being made by market participants, economists and commentators.

Such a measure is considered effective because it allows – according to those who propose it – a rapid reduction in the debt burden, making it more sustainable. It enables a country to avoid implementing an overly restrictive fiscal policy, which may further hamper growth and lead to social tensions. It spares taxpayers from having to pay for mistakes made by investors, especially foreign ones, who have lent too eagerly to the country. More generally – they argue – the default of a sovereign state allows the financial markets to function better and to incorporate the risk premium appropriately.