The last 24 hours have been dramatic on the world markets. News of the widening spread between Italian and core European rates generated alarm that Italy now looks likely to default on its national debt. Later in the day, Spain cancelled a planned sale of bonds scheduled for later this month - a sign that the Spanish authorities are concerned about their own ability to manage their debt. Subsequently stock markets tumbled. The economic outlook looks grave indeed.

Default is an emotive term. There are many ways in which a debt can fail to be repaid in full - complete default is at one extreme, but there are other measures such as restructuring, partial repayment, and abnormal levels of inflation that can be used to reduce the scale of the liability. It is now inevitable that a significant number of economies in Europe (at least - let's keep America out of the discussion for now) will, in some form or another, default.

The easy money that has flowed in from the rapidly developing economies will no longer be so easy - investors in these emerging economies will have diminished confidence in the developed economies. In the medium term, it will become harder for the developing economies to live with debt. This further limits the wiggle room that governments in these economies have to manage the transition to a more stable path. We're in for some turbulent, and pretty horrible, times.