Images of "The Treachery of Images," the painting by the Belgian artist Rene Magritte, who wrote "Ceci n'est pas une pipe" ("This is not a pipe") under his his impeccable portrait of a smoking pipe, keeps flashing off and on in my mind as I look at what is going on in the increasingly surreal world of global public finance.

Government after government is stumbling head on toward bankruptcy. The latest bailout package put together by the Europeans to support heavily indebted Greece (as well as Ireland and Portugal) involves a lowering of interest rates charged on the bailout loans, longer maturities on those same loans and a grace period of 10 years thrown in for good measure. Private-sector creditors have been asked to bare a share of the rescue burden by taking part in various bond-exchange schemes and existing loan rollovers. Estimates have it that the private sector stands to lose some 21 percent or so on the face value of their bond holdings.

In the real world all this would be more than enough evidence to declare default. The rating agencies, for all their inability to come to grips with reality in the runup to the Lehman crisis, seem to have got it right this time round by making it clear that a call of default is required once private creditors incur losses on their sovereign loan portfolios. The writing on the wall is all too clear for nations that cannot honor their debts without restructurings and forgiveness.