Can they just ignore the debt like it never existed? Are there real reprucussions for the government or impacts to the econony?
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Countries’ debts are usually in the form of bonds, with specific payback periods and interest rates. What they often do is issue new bonds as old ones mature. So while the debt might remain the same size or grow, that doesn’t mean they’re ignoring it or not paying it off according to the terms. As long as they pay back bonds as they mature and can meet the interest payments of the bonds currently held by investors, then it’s OK.
When countries start defaulting on bonds, refusing to pay interest or principal owed to investors, that’s when it becomes a major issue. In addition to such a move signaling economic issue that will harm the entire economy, it also prevents the government from being able to borrow again as investors will not want to get burned, and will look elsewhere to invest.
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