Greece has an uphill battle to break with a long tradition of default or restructuring of debts, and I wish them luck. By itself Greece would not be enough to bring down the entire union.
Italy is in a different situation because much of their sovereign debt is held by domestic lenders. With unemployment around 10% leaders have some room to maneuver without causing the economy to tank. Negotiating with domestic lenders, who also have a direct stake in economic recovery, can lead to a workable strategy without requiring new agreements across borders.
Spain is the country which worries me most at the moment. In addition to huge debts, both public and private, they have unemployment around 20%. Getting people back to work requires investment. Even if investors are convinced the government is not simply borrowing to meet current expenses the risk of default is on many minds. This has pushed interest rates on their debt to a level where other governments have failed. In addition, Spain continues to have an overhang from the housing bubble. More mortgage defaults and bank failures are quite possible if the economy simply fails to improve.
The vicious cycle here is that perceived risk raises interest rates, directly affecting that portion of the budget allocated to servicing debt. In addition, increasing risk causes central banks to impose higher reserve requirements, and take other precautions against banking failures. The end result is that the financial sector of the economy draws capital out of active use at precisely the time when economic activity is heading down.
Current projections of even strong European economies are practically flat. Without growth all savings, and all new interest payments, must come from reduced expenditures. This is a classic recipe for a major contraction.
The next country to worry about is France. There is no question about commitment by the central government to both sound banking and reliable payment of sovereign debt. The problem here is the scope of existing commitments. Intervention during the near collapse of 2008 gave the French nation a substantial stake in many banks. Some of these have already been weakened by problems with debt in southern Europe. As the perceived risk of nations defaulting rises, so does the risk associated with banks holding sovereign debt. This lowers confidence in the ability of those banks to meet commitments, driving up the interest rates on money they must borrow. The French may be caught between the Scylla of banking failure and the Charybdis of default on sovereign debt.
The question next becomes, "Can the French nation keep all the promises its leaders have made?"
Before I even consider discussing economics and politics on this side of the Atlantic I'll need a bit of a lie down.