Investors and European lawmakers were given a stark reminder that this weekend’s 110 billion euros ($143 billion) rescue package for Greece has yet to draw a line under the sand of the euro zone debt crisis.
Tuesday's selloff in stocks continued Wednesday morning in Europe, while the euro's losses deepened on contagion worries.
The shorts went after the single currency and bought the dollar. Share prices across the world fell heavily and yields on Portuguese, Spanish and Greek debt all rose sharply as protestors took to the streets of Athens to demonstrate against austerity measures imposed as part of the IMF/EU rescue deal.
As German lawmakers prepare to discuss the Greek rescue package in Berlin ahead of a vote on Friday, the market is already beginning to ask if the German public and the European Union have the stomach for a rescue package for Portugal, for Spain, for Ireland and even for Italy.
The German parliament is expected to vote in favor of the Greek rescue plan, with other euro zone members expected to follow suit.
Greece now has at least two years breathing space to get its house in order and strip costs out of its bloated public sector. Chancellor Angela Merkel told lawmakers in Berlin this morning that Germany will "live up to its responsibility to the euro."
The cost of that responsibility remains unclear and bankers, investors and analysts give opposing views on how contagious the Greek situation is.
Frédéric Oudéae, the CEO of French banking giant Societe Generale which has 3 billion euros exposure to Greek government debt, told CNBC in an exclusive interview that the market was overreacting to the Greek story.
Oudéae dismissed fears of contagion saying other euro zone countries where not in a similar situation.
How Much to Stop Contagion?
But Jan Lambregts, global head of financial markets research at Rabobank, disagrees with this view over the long-term.
The market, which is often accused of a short-term view, is now taking a very long-term look at the Greek situation and asking if 110 billion euros is just a fraction of what will ultimately be needed to stop contagion.
The International Monetary Fund's chief Dominique Strauss-Kahn said there was a risk that the Greek crisis would spread to the rest of Europe, according to a French newspaper report.
Lambregts believes investors should be watching for two factors. Firstly, can Greece deliver on its promised austerity program?
"Governments need to be elected and it remains to be seen if Greek voters will accept the tough measures imposed by the IMF and EU," he said.
The second factor is the impact of austerity measures on economic growth.
There is a major risk in the austerity measures pushing Greece into a deep recession, said Lambregts, who questions how higher taxes and lower government spending can lead to growth.
Under the terms of the austerity package, Greece is expected to return to growth within three years but he believes even these lowered targets are ambitious.
Amid Tuesday's market selloff, a rumor was doing the rounds that Spain would require 280 billion euros to shore up its finances.
Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed this as "complete madness" but the Spanish stock market fell by 7 percent.
Speculation on what it would cost to bail out Portugal or Spain is now rife, with analysts across the world crunching the numbers on the basis of the Greek package and there is a real risk that this speculation could become self fulfilling.
Credibility Is the Key
If Spain and others are real about averting an attack by the shorts, they need to clearly signal to the market they are credible now, said Lambregts.
"Proactive action is needed to get ahead of the market on this story. There is no reason for the market to help them out of a crisis and further action is needed. The current crisis is like Hydra; every time you cut off a head another one grows back and takes a different line of attack," he said.
Governments like Spain and Portugal have no place to hide now, Anthony Gibbs, a senior gilts broker at Vantage Capital Markets said.
"Urgent action is needed and it is not just in the euro zone. The UK and US also need to get their acts together," Gibbs told CNBC.
The man who oversaw market stability for the Bank of England during the banking crisis believes dithering at the EU level raised the eventual costs of the Greek rescue package.
Sir John Gieve, the former deputy governor of the BoE, told a meeting in London on Tuesday that "there has been sort of a Lehman's moment in the EU."
"They have sort of dithered over this. Will they, won't they, should they shouldn't they, as a result, the price of saving the day has gone up," he said
The big question now is whether governments in Greece and other euro zone members can gain credibility on austerity measures and borrowing without losing power.
If not, the big question will be how much it will cost to rescue the euro zone or find a way out of the 10-year experiment.