Several major European banks are big holders of Greek debt. If Greece defaults, these banks will suffer huge amounts of write-downs. Recently, major French banks were considered for a ratings downgrade. Germany and France are the 2 biggest holders of Greek debt.
Banks will be reluctant/scared to lend to one another.
There will be a global credit crunch, a repeat of the post Lehman Brothers collapse in 2008.
Ireland and Portugal will just default too. Their governments will be thinking, "Since Greece is allowed to default, why should we suffer all the painful austerity measures?" The defaults of Ireland and Portugal will spread the debt contagion to Spain and Italy. Spain holds a relatively large amount ...
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