I think Greece's 120% debt-to-GDP ratio would corresponds to the need to pay about 7% GDP in interest, and roll over about 25% of GDP in principal.

So, a default would free up about 30% of GDP in government expenses. Though, in terms of reducing deficit, only the interest payments would count.

So I'm not sure Greece couldn't make do just with the tax revenue. Plus, they could issue some sort of IOUs redeemable in payment of state taxes as a form of currency.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan