This particular viewpoint has been making the rounds a bit. It goes something like, “We shouldn’t worry too much about the sovereign defaults in the Eurozone, because it’s only the small countries and they have small GDP’s. Look at these U.S. cities!”
So the problem here is two-fold. First, it isn’t just the small countries that are defaulting. Spain is already in deep trouble, and we have seen plenty of signs that Italy doesn’t have the brightest economic future ahead.
Second, the problem, or the grander problem rather, isn’t that the countries are defaulting, the issue is the snowball effect and what happens to the Eurozone after the first default.
What’s that? Greece was given a huge debt haircut in the form of a “restructuring” letting them off the hook for a massive amount of dough? You better believe Portugal and others are going to want their debts forgiven as well.
It just simply isn’t as easy as bailing out a couple of nations with GDP’s that “aren’t even as large as Boston,” there are implications that come with that sovereign debt forgiveness, and much of it is complicated and ugly.