Why the fear of debt contagion.

Some of you wonder why the default by Greece threatens the European house of cards and beyond. The problem is due to the existence of a fractional reserve banking system. Basically, the central bank of a country loans money to the banks and in turn the banks are allowed to make loans to various people. This process multiplies the money the banks are loaned. Banks are required to keep on reserve a fraction of the money that people have deposited with them. Hence the name 'fractional reserve.' You can get a more detailed explanation here:
http://fee.org/freeman/detail/fractional-reserve-banking-part-ii


What happens if a big client defaults on a loan? It reduces the bank's assets, i. e, its reserve.  value of the default must be covered. Eventually, this leads to hyperinflation.