There is a concept in economics known as the "snow-ball effect" on debt. It involves the self-reinforcing effect of debt accumulation arising when the growth of the national economy is less than the interest paid on public debt.
In math it looks like this:

I'm not going to focus on the mathematics here when the way the financial markets are reacting to Greece is all you really need to know.

Insurance costs against a Greek government default leapt to a record after leading debt analysts warned the country's economy could face a 'slow death' because of its deteriorating finances.

The concern is that Greece's economy is fundamentally uncompetitive in the world market, that it must borrow just to maintain its basic needs, and that interest payments on the debt accumulation is now reaching levels that has forced Greece to drastic action. Raising taxes and cutting social services to pay the interest will smother the economy further, making more borrowing necessary.

There is still some confidence out there that Greece can pull out of the vortex it is currently circling, but that confidence might be unwarranted.

Ideally, Greece needs solid GDP growth, inflation, and a low spread on Greek bonds vis-a-vis German ones. The problem is the Greek Stability Programme may achieve none of these.

The European Central Bank effectively ruled out a bailout for Greece, while the markets began seeing a greater risk of default in the short-term. There are whispers that Greece is the next Argentina.
At a certain point in the not to distant future, the markets are going to realize that Greece's predicament is terminal. When that happens things are going to move fast.
That's a very big problem, because so much of the rest of Europe is also fragile. For instance, Portugal is also mentioned on the "slow death" list, not far behind Greece. It's being called the worst crisis for the Euro since its introduction.

"On the one hand, they can't let Greece get away with pursuing unsustainable policies; on the other hand, at the same time they can't be too tough with the Greek government, because there is only so much the Greek government can do, there is already risk of social instability in Greece," Tilford says.
Analyst Tilford sees no "chance at all of Greece being able to reduce its deficit as quickly as they are suggesting; with growth prospects so poor, with demand for their exports set to be so weak," which he attributes to Greece becoming uncompetitive within the eurozone, as well as the strength of the euro itself.

Normally when a nation becomes uncompetitive the default option is a currency devaluation. However, that's a problem within the Eurozone, where both strong and weak nations share the same monetary policy. This leaves Greece with only one option: austerity.
Austerity does not come without risks. In the case of Greece, there is almost certain to be social unrest. The other risk is that the austerity will by itself cause the snow-ball effect on the economy, thus becoming self-defeating.

While everyone is focusing on Greece, these very same issues are being debated on the northern side of the continent in Latvia.

'In two years Latvia has lost 25.5 per cent of GDP and the only example worse than that is the Great Depression in the US,' said Mark Weisbrot, co-director of the Washington-based Center for Economic and Policy Research speaking at the University of Latvia.
But with the economy continuing to contract the total loss will ultimately top 30 per cent and represent 'the worst two years in the recorded history of the world in terms of output,' Weisbrot said.

Things are so bad in Latvia that Prime Minister Dombrovskis said recently: “We will just go bankrupt if we observe all legal norms.”
Latvia isn't part of the Eurozone, but has pegged its currency to the Euro as a precondition to becoming part of the Eurozone. It is this situation that is causing the economic debate so similar to Greece.

“It makes no sense to continue to shrink the Latvian economy, with no end in sight to the recession, simply to maintain the pegged exchange rate,” he wrote. “Maintaining the fixed, overvalued exchange rate also creates enormous uncertainty that undermines investment and causes capital to leave the country.”

The whispers are so strong that the PM felt the need to officially deny the devaluation rumors.
According to the IMF, 1.5 Billion Euros of investment will flee Latvia this year, an enormous amount for such a small economy.

Ukraine's economy has been hit nearly as hard as Latvia's, shrinking 15% just last year. Both Latvia's and Ukraine's debt levels are listed far below investment grade.

The first stage of this global credit crisis involved the weakest links: subprime borrowers. Once they began defaulting en mass, credit-worthy consumers and corporations suddenly discovered that they couldn't get any new credit. The defaults and bankruptcies then moved up the ladder.
Eventhough governments were compromising their balance sheets to save these shaky banks and corporations, investors ran to sovereign bonds for safe haven. The problem is that governments borrowed more than they could pay back.

A good example of this is Iceland. Last week the citizens of Iceland balked at bailing out foreign banks. In turn the rating agencies downgraded Iceland debt to junk, and there are questions about whether the IMF will halt their aid package.

The issue of unpayable debts and Odious Debts have been around for many decades. As long as the nations were places like Chad, Iraq, Haiti, and Jamaica, for example, no one seemed to care. Now that the problem is hitting the fringes of Europe, the taboo issue is finally being discussed.

The final and, in truth, most important question is whether these demands are reasonable. After all, in every civilized country it has long been accepted that there is a limit to the pursuit of any debts. That is why we have introduced limited liability and abolished debtors’ prisons. Asking a people to transfer as much as 50 per cent of GDP, plus interest, via a sustained current account surplus is extraordinarily onerous.

Not just onerous, but impossible to maintain as well.