There was only the briefest of relief rallies on Monday (Tuesday in Europe, after the May Day holiday) on the news that a bailout package had finally been agreed for Greece. Spreads on the credit default swaps of Greek sovereign debt rallied to 600 basis points from their close at 732 bps on the previous Friday.But the CDS spreads quickly started widening again as financial markets turned their attention to the prospects of the package being delivered, and even if it was, would it solve Greece's problems in the medium term? The markets quickly concluded the answers were no and no.The factors working against the actual delivery of the package were: • would the Greek parliament pass the required austerity measures?• would the Greek people accept the austerity package?• would the German parliament agree to provide more than €20 billion of aid, the largest single contribution?• would the IMF Board approve the largest bailout the IMF has undertaken to date?The answers were eventually yes but they quickly became irrelevant as the markets concluded that the answers didn't matter - Greece is going to default anyway and it is only a matter of when. The problem is that the debt burden is simply too large and can never be repaid. The Germans seemed to give the game away during the week with talk of the need for an orderly default. This was initially thought to be said in the context of how to deal with any other euro zone member that finds itself in difficulty, after Greece. However, suspicions built that this is actually the plan for Greece, either should the bailout package fail to be delivered or shortly after it is - for the reason mentioned above.As of Wednesday, Greek CDS, at 790 bps, were pricing in a 45 per cent chance of default at some point over the next five years. As of Friday, with Greek CDS at 940 bps, default was virtually a given and the markets were worried about who would go next.The problem now is contagion risk and where it will stop. The markets fear that we are now entering the second leg of the GFC - GFC II. The second leg could be far worse than the first. There is the potential for multiple sovereign defaults among the weaker euro zone members, the failure of their banks and possibly the failure of several major European banks because of the massive exposures that they have to these countries and their banking systems.