The current issue of the London Spectator is running an instructive, if remarkably gloomy, piece (behind the pay wall) by Johan Norberg. The whole thing is well worth reading, but this gives a flavor:
Might? If it happens in 2011, there’s unlikely to be much might about it…All governments are betting that they can keep borrowing such extraordinary sums at very low rates. But the markets may have other plans. Consider the evolution of this crisis. The crash happened because households consumed too much, sending their debts to the banks. The banks sent the debts to the governments — and, as we saw with Ireland, even governments might struggle to meet them. So they are sending their debts to the European Union. But to whom will the EU send the bills when its credit card is maxed out?Greece and Ireland aren’t just illiquid, they are insolvent — and nothing is solved by taking new, bigger loans when they can’t pay the old ones. If Ireland or Greece default on their debt, forcing creditors to take steep losses, it might spook the markets and pull out a thread that unravels the garment.