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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Sovereign Debt Crisis is what to google.
The immediate thing that happens is a bond market crash. Everyone who owned that country’s bonds is suddenly out all of their money. That can cause a contagion crisis elsewhere. Those wiped out investors often owe money other places and this leads to further defaults. If it’s a small country, it might be contained but if it’s a large country like the United States, the whole world financial system would melt down.
A follow up problem is the country in question would have big problems taking on any debt going forward (who would buy it?). So if they are running any deficits, they would need immediate budget cuts to stay afloat. Bear in mind, the bond market crash will cause a decrease in the wealth of the country’s people which will cause a decrease in tax revenue which will increase their budget deficit.
So, it’s really bad. No one would ever do this on purpose.
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