This seems terribly unwise...

On how the credit default swaps for Greece may not pay out despite well, defaulting (WSJ):

If insurance written by market participants for market participants is invalidated by sovereigns, what is the value of insurance contracts being offered by the sovereigns themselves? 

Here I’m referring to the European Financial Stability Facility, which is now being touted as a super insurer of European sovereign debt (albeit maybe only the first 20%). Once again, Buiter makes a critical point: not allowing existing CDS to trigger reduces the credibility of the EFSF protection. 

I’d go even further. The whole euro exercise has raised serious credibility issues. Governments used all sorts of accounting fudges, off-balance-sheet accounting and derivatives to meet single-currency membership criteria that had already been stretched to breaking point. Greece consistently misled on the state of its finances. 

France and Germany broke the Maastricht treaty obligation to keep their budget deficits below 3% of GDP even before the 2008 financial crisis. 

The latest maneuverings just confirm that Eurocrats make used-car salesmen look like the apotheosis of probity, prudence and honesty.

Expect there to be "unanticipated consequences" like higher interest rates, and the fact market participants will generally be wary of buying an insurance product that doesn't actually insure against anything.  More here on the short cuts, half measures and games European politicians and finance ministers are playing to forestall what seems increasingly inevitable - and how in doing so, may "unintentionally" be making things worse (Telegraph.co.uk).