[dageshi]

It was the precedent that mattered not the size of the Greek economy, in the same way that the size of Lehman brothers in the US didn't matter individually but the precedent that the US government would no longer write blank cheques to bailout failing institutions did. With Greece the precedent was set that what "NO BAILOUT" actually meant was "NO BAILOUT" if the problem is small enough to not impact anyone else.

[waps]

I think the big elephant in the room argument is right. They legislated their debt out of existence, and ... the market didn't care.

So the US can do the same, with the same result. Declare all US debt/treasuries to only have 50% of the nominal value. Immediate result : large drop, followed by recovery. Longer-term result : nothing.

So the Cyprus and Greece crises made this a valid policy option. It doesn't look like it will be necessary any time soon, but it has gone from inconceivable to "will happen at some point in the future".

The market doesn't actually want you to pay back your debt. They care, but not enough for real consequences for the debtor. Why ? Simple : there's no other place to put money if you have very low interest rates everywhere.