Germany could indeed back out, but they are heavily dependent on exports to other EU countries and it would hurt their economy. It's a crazy system: Germany is lending money to Greece, Spain, Italy, France so the people in those countries can buy products from Germany and keep the German economy going.
I doubt the contagion will spread. For two reasons: 1) European banks since 2011 have substantially bolstered their liquid asset reserves just for this contingency and 2) Spain, Italy and France have the agricultural and industrial base to produce their way out of a financial crisis.