Looks like countries defaulting on their debt is not uncommon. Refer to the wikipedia link below. Looks like it happens all the time, and the countries are still around and banks will forgive and forget and then make new loans. So at what point do they say enough of the austerity measures and just default. The country will go on and after awhile banks will make them loans. Only thing is investors will take it on the chin. Of course in the wiki article it mentions that Britian invaded some countries due to default.

Why would not Greece or Spain or Protugal not defauld. Yes painfull in the short term, but look at the number of times some of these countries have defaulted in the past. I remember in the early 80's south america countries defaulting and they called them bannana republics. They are all still there and some doing well. Much like a company clearing itself of promised pensions, health care promisses, loans, etc...

Guess a big thing now is that Banks such as B of A and others have written insurance polices on nations debt and if those nations default they are on the hook for all that insurance that could cripple them. So even though you may have an american bank that does not hold lots of sovereign debt they may be holding insurance policies on this debt.