This is one key reason as to why there were next to no risk premiums on government bonds of highly indebted member states prior to the financial crisis. Investors quite rightly assumed that the euro-area countries would not allow a member state to fail as this would have negative consequences for financial stability throughout the euro area.
Conversely, this means that the no bail-out principle can only be credible if there is an orderly procedure for winding up a sovereign without this having a knock-on effect on financial stability. We have to make the prospect of a sovereign default less frightening, as it were.