Nothing to do with debt/GDP. GDP is a flow measure, if you cannot pay back the debt in your example that means the total assets are lower than the sum of debt (

Nothing to do with debt/GDP. GDP is a flow measure, if you cannot pay back the debt in your example that means the total assets are lower than the sum of debt (otherwise could sell assets). Some countries have more private savings than GDP, for example. (Setting aside that sovereign debt might not have a put option in them to start with).