If an exit happens, there will be huge practical and political challenges. The first will simply be the mechanics of how Greece will return to its own currency—when and how the banks will stop issuing euros and start issuing the new currency, and, most crucially, what the currency rate will initially be. There might be enormous attacks on the initial rates set as the global currency market starts to accommodate this new entrant. In addition to this, however, there are issues which are much more political. These, in the end, are the most challenging. For over three years, the leading nations in the 17-strong euro-zone area have been stating repeatedly that there can be no compromise—commitment to the euro's unity and to Greece being a part of this is complete. The euro zone has the resources, they have been saying, to deal with this issue, and the political commitment. Everything was under control. There was a plan, and no matter what happens, the euro zone could deal with it.

A Greek exit would undermine all of this. It would place a huge question mark on the euro zone and the EU generally, and on its ability to confront problems. It would question the commitment of its members toward each other. It would cause deep questions to be asked about just how effective their relationships are with each other, and what the nature of their definitions of mutual benefit and integration is. A Greek exit in the end would make the EU itself look like a far less convincing entity. It would be a huge loss of face, and potentially of credibility.

With a Greek exit, there would follow a series of other worries. If Greece failed to stay in, then why not Spain, whose attempts to sell new government bonds met with tepid interest in early June? Spain, a far larger economy, has unemployment levels even higher than Greece. But the size of its economy relative to Greece's means that its potential fall would pose far greater challenges. From Spain, concern shifts to Italy and Ireland. Contagion on this scale could have devastating consequences, for the world's largest single economic area, and for the rest of the world.

From this point of view, what happens in Greece will have an impact on China. The EU and China remain the world's largest trading partners. Total trade between the two in 2011 came to more than $560 billion, according to Chinese statistics. A depression in Europe would therefore have costs for China. It would also have major implications for the United States. In an election year, the failure of the EU to be an ally for President Obama as he tries to kickstart the moribund U.S. economy and the stagnant job market while seeking a second term could mean the difference between winning and losing.

Political will

For all the talk of Greek default and exit, and the contingency plans, the political will at the moment is still to do everything possible to keep Greece in. As long as the problem remains confined to Greece, then the view will probably be that it is manageable. The Greek elections in June will hopefully deliver a result where a workable coalition can be put together. There will then be the challenge of trying to sell increasingly hard measures to a very weary public so that the funds for the economy coming from the European stability fund continue. Some were held back in May when it was felt that the Greek Government was dragging its feet on its original commitments.

If Greece can produce a government with some kind of mandate and the necessary political will, then getting through this crisis will become a little more likely. The problem is that across the EU at the moment politicians are held in low standing. Their credibility has been put to the test and found utterly wanting. The space for extremist voices has grown, and for extreme remedies.

In many ways, what happens in Greece therefore is a huge test of wills—of the public for putting up with harsh measures to rein in public spending, of the governments for being able to communicate the reasons for this, and of the leadership of the EU for maintaining political unity and commitment to solving these problems. The underlying issue in the end, however, remains the same. How can you have economic unity without political unity? That remains the greatest issue. Greece's travails with its membership of the euro zone test this to its core.

The author is a team leader of the EU-funded Europe China Research and Advice Network

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