The Impact of a Greek Exit
As far as the European officials are concerned, once Greece leaves the euro, the creditors who financed the Greek bailout would be vulnerable to not getting paid in the future. If Greece chooses to pay back the loan in drachma, the net repayment would likely be lower due to any depreciation of the currency in coming years. The other possibility would be a complete loan default. In both scenarios, once Greece abandons the euro creditors would lose money, which would certainly have a contagion effect on the global economy.
Since the majority of these creditors are EU banks, the European banking sector is expected to suffer the most. The notion of smaller banks closing down or merging with larger banks in order to stay afloat is a definite possibility. Additionally, once Greece exits the euro, it will establish a precedent for other troubled economies in the region. If debt ridden countries like Portugal, Italy, and Spain choose to follow Greece's path, confidence in the euro as a viable common currency would be greatly diminished.
Meanwhile, German annualized inflation dropped to 0.1% in December 2014, a more than five-year low. Germany desperately wants the European Central Bank to pursue an expansionary monetary policy in terms of another round of QE in the first quarter of 2015 in order to help boost the economy and the EU inflation rate.
With the ECB's policy setting committee set to meet on January 22nd, three days before the Greek elections, it is looking less likely that any new QE will be announced. ECB officials do not want to announce any new QE measures while advocating austerity for Greece. The fear is that such a move would be seen as hypocritical to Greek voters, which would help the radical left in the election. Whether QE is announced or not, it appears that turmoil in the EU is likely to extend the euro's bearish run in the coming weeks.