Germany is right to want the banks and other financial institutions that lent to Greece, sometimes at very high interest rates, to pay part of the costs of the current disaster. But simply put, this needs to be done in an orderly, fair, and controlled way, through a specific European-level tax on the banks—not by a partial default of the Greek state.

What’s the difference? It makes all the difference. The problem with default is the blind and unpredictable nature of the consequences. We start by cutting the value of all Greek bonds by a certain amount, let’s say 50 percent: those who lent €100 will be paid back €50 (a 50 percent haircut, in the usual parlance). But since the banks already passed the hot potato thousands of times, often with multiple insurance contracts linking them to other banks (including the infamous credit-default swaps, securities that basically let investors play the lottery on the probability of a Greek default), and since some actors can own Greek debt without even knowing it (for example, in recent years many ordinary savers had “packages” of European debt foisted on them in the fine print of their life insurance contracts), no one knows who will end up footing the bill. There’s no reason to think that the distribution of sacrifice will be fair: in financial matters, the biggest players are often the best informed, getting rid of toxic investments just in time. Above all, there’s every reason to think that the chain of effects on bank balance sheets will result in panic in the European financial system, even cascading bankruptcies. Especially if the markets start anticipating that the same strategy of default and “uncontrolled haircuts” will be applied to the debts of other countries in trouble.