The January 25 elections in Greece are raising concerns that if the current leader in the political polls wins the election, the country may threaten to leave the euro monetary group unless Greece’s debt is forgiven. When the idea of debt forgiveness came up several years ago, it was promptly squashed by other eurozone members who were trying to prevent the loss of some $500 billion in loans that their banks had made to Greece.

In a report published Wednesday morning, Moody’s Investors Service acknowledges that the possibility of a Greek exit from the eurozone does exist today, but that the possibility remains “lower than during the peak of the crisis in 2012.” The heightened risk brought on by the pending elections, however, could have “negative credit implications” for other members of the eurozone.

Moody’s chief credit officer for Europe, the Middle East and Africa said:

Any exit from the single currency would be a defining moment for the euro: it would show that the monetary union is divisible, not irreversible. However, although a Greek exit today would likely trigger renewed recession in the remaining euro area, the credit impact may be less pronounced than in 2012 because contagion risk from a Greek euro exit has materially declined and because policymakers now have stronger tools to limit the damage from such an event.

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That new toolbox includes weaker cross-border links among European banks, a sharp reduction in the amount of Greek debt that these banks still hold, structural reforms in some eurozone countries, lower levels of current account and fiscal deficits, and stronger safety nets. These tools would mitigate the effects of a Greek exit from the euro, but would not eliminate the damage: “Although, even with these tools, a Greek exit would trigger heightened market tensions and a renewed recession in the euro area.”

Moody’s also notes that while short-term economic damage in Greece would be “severe” while a new currency stabilizes, “Over the longer term, economic growth in Greece following an exit could exceed that in remaining euro area countries — which, in turn, could trigger discussions around further euroexits.”

Short-term pain for long-term gain. The real question is who will suffer the most in the short term, and that is almost certain to end up being the Greek people.

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