A fascinating perspective from Robert Thorpe at The Cobden Centre – The consequences of the impending national bankruptcies:
The governments of Portugal and Ireland are waiting for Greece to default. If that happens then it will likely trigger the bankruptcy of several European banks*. This is the “Second Lehmann Brothers” the UK press have been discussing that could cause another financial crisis. I think such a crisis is likely to happen, but for political reasons more than economic ones. If one of the three countries I mention were to default then the ensuing crisis would give the others permission to do so. It would allow them to blame default on outside events. The politicians in the remaining two countries involved would then become heroes rather than villains. It’s quite likely that in this situation default could be popular since it could reduce taxes.
Elsewhere, I was reminded of a relevant saying of Hayek’s in 1932:
[M]onetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown.
It’s to be found in the preface to Monetary Theory and the Trade Cycle (PDF, pp. 5-7), from Prices and Production and Other Works, a book I dearly wish more economists and thoughtful people would read.