From the transcript –
BRYAN DAWE: How much does Greece owe, Roger?
JOHN CLARKE: $367 billion.
BRYAN DAWE: Correct. And who do they owe it to?
JOHN CLARKE: Mostly to the other European economies.
BRYAN DAWE: Correct. How much does Ireland owe?
JOHN CLARKE: $865 billion.
BRYAN DAWE: Correct. Who do they owe it to?
JOHN CLARKE: Other European economies mostly.
BRYAN DAWE: Correct. How much does Spain and Italy owe?
JOHN CLARKE: $1 trillion each.
BRYAN DAWE: Correct. Who to?
JOHN CLARKE: Mainly France, Britain and Germany.
BRYAN DAWE: Correct. And how are Germany, France, Britain going Roger?
JOHN CLARKE: Well they’re struggling a bit, aren’t they?
BRYAN DAWE: Correct. Why?
JOHN CLARKE: Well ‘cause they’ve lent all the vast amounts of money to other European economies that can’t possibly pay them back.
BRYAN DAWE: Correct so what are they go to go have to do?
JOHN CLARKE: They’re going to have to bail them out.
BRYAN DAWE: Correct. Where are they getting the money to do that Roger?
Well, where are they going to get the money from?
It should be obvious now, why “no euro country will be allowed to renege on its debts”.
Once the issue of ensuring that, long term, member states’ fiscal policies are congruent with the constraints of Euro membership, should the ECB pay off some this debt? Bearing in mind Walter Bagehot’s maxim – “any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank”, this kind of aid should only come after serious and painful (so as to reduce moral hazard) reform in deliquent Eurozone states. Due to the web of interconnections all member states would benefit, either directly or indirectly, and the spectre of default would be lifted.