In a sense we always knew this.
Also, in a sense, outright default is better than the most likely alternative: bailout. The problem with bailouts is that they transfer risk from risk-takers to non-risk-takers. Unfortunately, Morgan Stanley is not talking about outright default in full, but only in part.
I would guess that local governments are the ones most likely to outright default, while national governments will either be bailed out by Germany or by the Federal Reserve, depending on which ones we're talking about. The latter case will cause "default by inflation", whereby debts are repaid in debased currencies.
