The business panel of the German Tories couldn't have put it any more clearly: Greece needs to impoverish its citizens if it wants to win aid. And that, my friends, is what debt crises are all about - attacking workers and the poor. The whole carnival of media frenzy and rating agency warnings has nothing to do with the fundamental economic problems faced by Greece, still less with debt, it is about generating an argument to justify a particular set of policies.
Let's take a look for a moment at the Greek "debt crisis". First of all, the whole discourse is embedded in a bias about public vs private debt. While it's true that the accumulation of debt is an indicator of something being out of balance in a national - or international - economic system, it is simply not the case that public debt is worse for an economy than private sector debt. Both, at a certain point, act as drags on further investment and consumption in an economy. But they are only symptoms of a deeper problem having to do with the aging of the system and the long crisis that began with the end of the post-war boom.
To really get a picture of the health of an economy (from the perspective of debt) you have to look at total debt as a percentage of GDP, which is not significantly different between, say, Greece and the USA or Italy and the UK. And when you do this what becomes clear is that there is an inverse relationship between public sector debt and private sector debt. What I mean is that - all things being equal - the elimination of debt in one sector simply moves it to the other sector. These fascinating stats (PDF) from the European Union demonstrate higher rates of savings and household investment in Europe where public sector spending is higher, than in the US. Savings rates and investment rates drop once the austerity budgets post-2008 kick in - simply put, government transferred its debt obligations onto the backs of its private citizens. That's what is at stake in Greece and Spain and Italy and... Toronto. Your tax bill may go down but your service charges go up and there is a net downward pressure on wages, benefits and conditions across the economy as a whole when government lays the boot in to public sector workers.
But this strategy for economic management doesn't work on two fronts. First of all, we - the majority - end up poorer and more indebted. And secondly, in a situation of depressed consumption and weak investment, the government ends up attacking consumption and investment. Even if this ultimately solves underlying "structural problems" - usually code for good wages and benefits - and makes the economy more competitive, this will only happen after a lag period between the end of one form of spending and the entry of private sector spending (assuming, in a situation of high private debt that companies and individuals don't simply pay down debt as opposed to investing). In that gap productive capital - not to mention skilled and experienced workers - are left to rot, unproductive. It can make a downturn even worse than it needs to be - it's like helping a drowning man by pushing his head underwater.