That is a bad thing, not a good one.
A country and renege on it's debts to outside sources. It will cause many problems, but it is possible. Expecially considering how powerful Japan is (and her military also, btw).
But a government can NEVER renege on debts to it's citizens or it can kiss getting re-elected goodbye and no one would EVER trust government bonds again. Which would be disastrous.
Look at Greece; far and away most of it's debt is owed to foreigners. And there has already been lots of talk in Greece of simply defaulting those debts, leave the Euro and go back to the drachma. And there is much support in Greece for that.
Sure, they will have great trouble getting more foreign loans. But it IS an option (and I believe the one they will eventually have to take) that is supported by the people (for obvious reasons).
Also, if they threaten default, all the foreign banks and institutions they owe money to will surely offer them great deals not to default since if they do not they risk losing the entire loan.
But none of this is an option if the money is owed to Greeks/Greek institutions.
You simply cannot default on loans from your countries people/institutions.
Out of the question - both politically and practically.
As long as you have the ability to print money.. then you wont. Greece cant print money, hence they have a problem on that front. Now of course not getting into such debts would be the best.
Plus in the end, defaulting to its own people, would only happen if the people started demanding the money, which they wont. They are too patriotic to do so, plus it is their savings which they at the moment dont need.
Point is, government debt is often blown out of proportions because of politics, not reality. The whole "sovereign debt debate" is utter bull****.. it always has been. When did it start? November 7th 2008. Before that, sovereign debt was only debated among economists at dinner parties because the theories were interesting talking points. Was the almost 10 trillion dollars under Bush or 3 trillion in 1980s under Reagan a "problem"? No it was not.. that was the going economic theory of the day.. Reaganomics!
But then a guy got elected into a house somewhere and the opposition saw that they needed a cause that would hurt this guy and make it possible to promote and continue the policies that they had been running for 20+ years. So the sovereign debt problem was invented. Its first target.. the US.. suddenly US debt numbers mattered and it was all the fault of this new guy and his people... it had not mattered a year before. And no one mentioned that most of the debt was in fact created by the very people and party (for the most part) that was now being critical of it... but hey, debt is easy to understand.. as are deficits... after all we all deal with this at our kitchen table right? And so was the Kitchen Table economists were born. And everyone forgot quickly not only who caused the economic crisis, but why and how.. because that was far too complicated to understand, but debt and deficit was much easier. And we have been there ever since, and not even punishing the very industries and people who caused the problems in the first place. Great switch and bait there. Even to this day, I would wager most American's dont know what caused the financial crisis, but they do know it is all Obama's fault...
Then this idea spread to centre right parties in Europe. Here they saw their chance of extending their rule, by evoking the debt problem.. creating a crisis and using that crisis to push through partisan economic policies they had wanted to do but had not had the balls or political will to do.... because it would cost them their power. And those few countries where the centre right did not rule.. of course exploited the situation to win power. And so came the "European Debt Crisis". With this excuse, cuts in the usual suspects started across the board.. healthcare, social programs.. all in the while they speculated in lowering taxes for the uber rich. Now only a few countries managed the latter, but it was attempted in most.
Of course the markets loved this, because there is nothing like a crisis to generate profits.. now that their money making machine of the US sub-prime mortgage market had gone belly up and driven their whole industry to the brink.. but now newly bailed out with tax payer money... CHA CHING! Lets exploit the fear coming from the kitchen table economics, that average people actually believe because it is so simple... not true, but simple. And they have been doing so ever since.. exploiting the markets for their own profit, while the rest of us suffer. That is why some countries were pushed off the edge and others were not. Playing the margins, with benefits for all.. profit or lower currency... screw the populations!
In the end of the day.. debt or deficits dont really matter in the overall picture. Governments have the ability to deal with such deficits and debts over time.... and it is this.. over time that is key. This economic crisis is what.. 4-5 years old? It was 20 years in the making. You just dont fix such things over night, but thanks to kitchen table economics... it is expected to be fixed by dawn almost. And it especially does not get fixed over night when one side of the political spectrum (left or right) is exploiting the situation to gain political power. I remember Denmark in the late 1970s. We were Greece. It took us over a decade to fix the problem.. hell it took us 30 years to pay off the debt accumulated. But it was done because the markets gave us time to deal with it. Now days.. pft, a country does not even get a half a year before the markets demand massive results.