The European Union's Predicament--help me understand

[Mike 03]

I've been reading everything I can on what the consequences of a Greek bond default might be, but I'm having trouble putting the pieces together.

Is this approximately what the issue is:

1. Greece defaults.
2. European banks with Greek exposure (especially Germany and France) get into trouble. Are we talking insolvency?
3. Germany has to save the banks, causing civil unrest and financial distress to Germany.
4. Because the U.S. has exposure to Germany and France, we feel the reverberations...

But the primary damage is in the EU, where fractures develop among the nations.

Now, how do the tenuous situations of Italy and Spain fit into this? Is the fear that if Germany cannot help Portugal and Greece, then Italy and Spain are in jeopardy?

Is this true? Is there a "domino effect" in play, or can Greece fail without the resulting consequences to its sister countries?