What does default mean

Anonim

The English term default means default, omission. We have been used to hearing about it for some time in computer science, where it indicates the basic status of programs, computers, devices, before being the subject of specific interventions.

More recently, however, this word has also entered financial jargon to indicate failure in essence. Particularly in the case of a company (or an entire nation) that fails to repay its debts according to the planned plan with the creditors. In fact it is in default.

In recent months there has been much talk of Greece's default risk.

What happens in default cases? The default of a State, however, is never total: usually its debt is "restructured" by delaying payments with creditors, while at the same time it is "forced" to increase revenues, ie taxes, and reduce public spending.

Banks. Once the default has been declared, even if partial, the State would no longer be able to pay interest on Bot and Btp immediately, nor to repay the capital: the debt restructuring would delay the payment terms, but this would bring down the value of the titles making them unsellable.

The banks, among the main holders of government bonds, would suddenly find themselves without having the revenue of the interests and would risk in turn to fail. The citizens, frightened by the situation, would begin to withdraw their savings from the banks, further aggravating the crisis. Private companies and families would no longer have credit from the banks: production would stop as well as consumption, fueling a dangerous circle from which it would become increasingly difficult to exit.

Insights

The Greek crisis explained to questions and answers

The history and geography of the default