Analysts: Euro would survive if Greece left

LONDON -- Greek voters' rejection of pro-bailout political parties in Sunday's election has raised the chances that Greece will leave the euro.

Many observers, however, now see this unprecedented step as manageable rather than catastrophic for the currency bloc.

Some analysts have raised estimates of the likelihood of Athens quitting the euro. But they said the damage could be contained.

"You wonder whether Greece is still a systemic threat or whether Greece is more of a Greek problem and a political problem for the rest of Europe," said Valentijn van Nieuwenhuijzen, head of strategy at ING Investment Management. "Unless you have strong contagion into Spain and Italy, it's unlikely to be really an issue that would undermine the whole eurozone."

The Greek impasse -- created when voters sick of austerity deprived the two main parties that back the country's international bailout program of a parliamentary majority -- has potentially increased the risk of it having to restructure its debts for a second time.

Citigroup estimated the odds of Greece leaving the euro area to between 50 and 75 percent from 50 percent previously.

Its currency strategist, Valentin Marinov, said the bank's economists expect it would be out within 12 to 18 months.

Since Greece took the first of its two bailouts in May 2010, international banks have sharply reduced their exposure to Greek debt -- and also the debt of other troubled European governments.

Instead, Greek debt is largely being held by the European Central Bank, as well as Greek domestic banks and speculative investors such as hedge funds.

"From that point of view, there is the possibility that Greece would be allowed to go its own way, whatever the Greek people choose that to be, and it could be managed by the rest of Europe," Rabobank currency strategist Jane Foley said.

One fear haunting markets has been that if one country left the euro and was able to devalue its currency to regain competitiveness, other weaker members might follow.

"Our view is that Greece will not trigger such exits," Citigroup's Marinov said. "In response to any escalation in market concerns, Eurozone policymakers and the ECB will take steps to preserve the remainder of the eurozone and keep it in one piece."