an attempt to answer your question
I'm gonna ask some REALLY stupid questions here - and the bankers amongst us will laugh at me (my excuse is I am a word-smith not an economist)...
BUT... Britain is supposedly £600b in the red. From WHOM or from WHAT ORGANISATION is this vast sum of money being borrowed?
If it's the World Bank...then who contributes what to the world bank i.e. is Britain a big contributor to the World Bank?
If so, why pay it back? If Britain can write-off hundreds of millions of pounds worth of third-world debt, then why not write-off some of it's own debt?
Why do the overdrawn countries just refuse to pay anything back, and then just draw a line under the debt and start again?
Surely most of the debt is theoretical (on paper only) anyway?
Am I even more stupid than I thought I was?
Snome, your questions occupied my mind too. Since you brought it up I decided to do some research on that matter. Not that I have the ability to really find the answer, but it’s worth a try. I went back in history to find out what money and banking are about.
The money we know now, found it’s origin in late medieval times (till about 1800). Our modern paper money did not exist. People traded mainly products (barter), or paid with coins, consisting of gold or silver (with a fixed value). The coins were made by goldsmiths. Possessing a lot of coins was dangerous (theft, violence). So the goldsmiths built safe places to store the valuable materials. People could place them there. In return they got certificates. Whenever somebody wanted his coins back, the goldsmith had the obligation to do so. But situations always have their own dynamic. People who owned certificates seldom returned to the goldsmith to collect the necessary amount of coins to buy something. They handed over certificates to the seller of a product. Same certificate, new owner. The consequence was that nearly all coins stayed in the safe of the goldsmith. This brought the goldsmith to a clever idea. He could loan another goldsmith coins of his stock and ask interest for it. Experience showed that he could loan 80% of his stock to others, without causing trouble.
What is the situation? Let us say we started with 100 coins from 100 owners who deposited it by the goldsmith. Then there will be 100 certificates of one coin.
The goldsmith loans 80 coins to another goldsmith. He gets therefore a certificate and interest.
The second goldsmith offers the opportunity to loan coins from him. Not actual, but certificates. A certificate guarantees the owner to change the value in coins. They have the obligation to pay their debt back and to pay interest for the certificate. But the second goldsmith knows that 20% of the coins are sufficient to stay out of trouble. So he loans 80% of his coins (so 64% of the original amount of coins) to a third goldsmith (with interest). This man does the same trick and loans 80% of the loaned coins to a fourth goldsmith. And so on. You can see that the number of certificates is increasing enormously (up to 400 instead of the original 100), while the original amount of coins did not change.
This method is nearly unchanged in modern banking. Only the name changed and is now: fractional-reserve banking. In this system the banks are constantly creating money (and huge amounts). The system can only stand by the trust of people. When people loose trust and want (all of them at once) their money back from a bank (a bank-run) a bank goes bankrupt. It is impossible for a bank to raise all that money, because they have only 20% in stock (nowadays even only 10%). In that case the “National Bank” and the Government help, by increasing the speed of the money printing machines.
As you can see this system is vulnerable. That is the main reason that the Governments were eager to help the “criminal” banks in the Credit crisis (when one bank falls, all fall).
A Government is in a way its own bank and acts the same way.
Snome, it is a bit a simplification of the problem, but this is in fact how it works. How institutions can have idiotic debts and still exist.
History is a beautiful and worthwhile source to learn from, however we seldom do.
The problem, if I remember, was that the couple were making exceptionally loud noises during sex on a regular basis keeping the neighbours awake , I've heard of another case where a guy (a singer) would practice in the wee small hours of the night with microphone and echo chamber and whatever. 
