No rich advanced nation has defaulted on sovereign debts since the end of the second world war but should the default option seem attractive governments should beware the longer term costs and consequences. The Economist this week has a feature on some recent research into the impact of sovereign debt default focusing in particular on the experience of Argentina. Three major effects are identified:

1/ Capital flight and currency collapse: Defaulting on debt causes a flight of international capital and a collapse (devaluation) of the currency - it happened in Argentina and also in Russia in 1997. This causes a spike in inflation and a sharp reduction in real living standards and higher unemployment

2/ Lock-out: Defaulting means that a country can effectively become locked out of the international financial system - capital markets will be unwilling to lend at anything other than penal interest rates.

3/ External finance for domestic businesses: Defaulting on sovereign debt has consequences for the ability of domestic businesses and individuals to borrow money - an external credit squeeze is often applied and this has negative effects on businesses seeking trade credit and funds for capital investment.

My chart shows the bond yield on Greek government debt surging to fresh highs - making fresh Greek government borrowing ever more expensive to service. Crucially bond spreads between Greece and the major Euro Area countries are getting bigger - the gap between Greek and German 10-year bond yields, or spread, widened yesterday to 3.91 points from 3.42 points on Thursday.

Ambrose Evans-Pritchard writing in the Telegraph argues that an IMF imposed Greek default is more or less inevitable. “A Greek default would be twice the size of the two largest defaults in history put together — Argentina and Russia — at least in nominal terms, nearing €300bn.”

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