Imagine what happens if Greece defaults on government bonds. What will people around the world think of government bonds in general, when they understand that their pensions are basically government bonds? There could be a violent contraction of credit, thus general price deflation. On the other hand, they could just blame it on one bad government, their own might be okay. Impossible to know.
Given the financial state of Greece, I'd assume that the bond yields would have somewhat adjusted (increased) given the higher level of risk?
I haven't been keeping a very close eye on Greece's situation lately. Since they don't have their own monetary policy, who is the main lender? ECB?
The increase has been more than a slight adjustment. Greek bond yields have continuously increased since Sep-2014. I wonder how much higher they can go.