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Germany doesn't want to write off the Greek debt for domestic political reasons and because of the precedent it will set. They would rather maintain the fiction that the Greeks will pay eventually and allow them to stay in the EU. It also gives the EU (read Germany) great control over Greece forcing them to endure mandates from the EU. Greece has already done some very painful things to comply with these edicts, including pension reforms.

What would be the consequences of a "Grexit"?

Membership in the Eurozone would no longer be perceived as irrevocable. Other countries might be tempted to exit or demand additional debt relief. These countries might see interest rates rise on their bonds, complicating debt service.

Geopolitical shifts, such as closer relations between Greece and Russia, as the crisis soured relations with Europe.

Significant financial losses for Eurozone countries and the IMF, which are owed the majority of Greece's roughly $300 billion national debt.

Adverse impact on the IMF and the credibility of its austerity strategy.

Loss of Greek access to global capital markets and the collapse of its banking system.

In the millions of words written about Europe's debt crisis, Germany is typically cast as the responsible adult and Greece as the profligate child. Prudent Germany, the narrative goes, is loath to bail out freeloading Greece, which borrowed more than it could afford and now must suffer the consequences. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks' aggregate capital. In other words, they lent more than they could afford. Irresponsible borrowers can't exist without irresponsible lenders. Germany's banks were Greece's enablers