It has to do with a country's government ability to loan money and spend it without its corresponding taxation. Greece outspent itself knowing it would be bailed out by the rest of EU. Germany and the other countries know this and refuse to have to extend a hand to a country who keeps on sustaining a huge lazy bureaucracy and absurd subsidies, so they force the Greek government to cut down, and of course the already lazy and freeloading population protests. Unfortunately there is no way to fix this because the Greek economy is already tied down to the EU so there is no "foreign" investment that can counterbalance the severe austerity measures imposed.

The "contagion effect" so much feared here is that all European countries are actually doing what Greece is doing to varying degrees, even Germany.

You cannot have economic union without its corresponding political union.