This is the most important issue facing the markets now. Greece at this point is a sideshow. Italian and French bond yields are on the rise.
The ECB would have to step in and conduct QE (buy these bonds so that their yields fall) to stem the contagion.
Germany, with its history of hyperinflation, is dead set against this course of action. Particularly since their inflation level is already quite high (due to the German export machine). Unemployment is at historic lows, and commodity prices are back on the rise.
Who’s going to blink? The market may be rallying assuming that the ECB will indeed print (Gold has risen strongly lately).