But it's likely the currency will stay intact, and fallout in the U.S. will be minimal. By Karen Mracek, Associate Editor June 5, 2012 When Greece leaves the euro zone -- and it most certainly will, one way or the other -- it'll damage, but not destroy, the 17-country common currency.SEE ALSO: U.S. Banks to blame for Greece? A default on its debts by the Greek government will happen as soon as this July, if June elections fail to result in a coalition government that's willing to make the spending cuts necessary to secure the latest bailout payment from the International Monetary Fund, the European Central Bank and the European Commission. Even if a pro-bailout government is elected, a bank run could force Greece out of the currency sooner or later. Deposits are already fleeing the country at a record pace. Alternatively, Greece may be able to hold on for some time, possibly up to a year or so. But Greece's problems -- declining competitiveness within the euro zone, budget deficits since joining the euro and cumbersome tax and regulatory systems -- won't be fixed by staying in the euro, and its departure is almost certain. Solid economic growth is needed to buy the nation enough time to make structural changes, and that can't happen while government spending is reduced at the levels outlined in the bailout program. Advertisement The euro won't be allowed to crumble, however. Too much is at stake for Germany, France and other euro users: A deep recession, paring 10% from the region's GDP, is likely in the first two years following a collapse. Though no other euro nation is such dire straits as Greece, Europe's central bankers will have to pump liquidity into Spain, Italy, Portugal and Ireland. They'll do so by cutting interest rates, buying up bonds, offering bank deposit insurance and maybe even issuing euro-backed bonds. Already, the European Commission is backing a banking union that would permit euro zone members to split the burden of bank failures. Even with those measures to contain the damage, a Greek exit will shave about one percentage point from euro zone GDP growth over the next two years. With a mild recession already under way there, that will spell a 1% contraction this year, if Greece leaves before the end of the summer. The punch delivered to the whole euro zone economy isn't likely to be much more than that, because Greece represents less than 3% of the total euro zone economy. Fallout from a Greek exit on this side of the Atlantic won't be too bad, as long as the euro remains intact. U.S. banks have long since taken steps to reduce their exposure to souring Greek debt, and only about $5.8 billion remains on the line for them. For U.S. companies and banks invested in European financials, there'll be some collateral damage through insurance and credit default swaps. European banks and governments have about $512 billion at risk through bailout loans and other investments in Greece. Look for the dollar to strengthen as turmoil spurs investors to jettison euros for safer havens, including Canadian and Australian dollars and the Japanese yen. By default, the U.S. will absorb most of the funds; other markets just aren't big enough to handle the large inflow of money. That means softer prices for commodities, including oil, which are priced in dollars: bad news for producers and good news for the bottom lines of big users of copper, tin and so on. Advertisement It'll also mean a dampening of demand for U.S. exports both to Europe and in third-country markets around the world where European goods and services will cost less than competing U.S. ones. U.S. multinationals operating in Europe will see consumer sales weaken. Uncertainty will continue to rattle global financial markets as the remaining euro zone members struggle to convince investors that problems are contained. Meanwhile, Greece itself is looking at a deep recession, losing at least 10% of its GDP within the first year of leaving the euro bloc. The exit will bring about a "significant drop in living standards for Greek citizens," according to the National Bank of Greece, with incomes falling by more than one-half and unemployment soaring to as high as 34%. What's more, with depositors fleeing Greek banks, newly issued drachmas will fly off government printing presses, risking hyperinflation. The country has few choices, and a more competitive Greek economy will ultimately be the result. More social unrest and worse relations with its neighbors are inevitable. But having shed its burdensome debt payments, Greece will see its deficit plunge to just 1% of GDP this year -- a manageable level. Economic growth is possible not long after. The more difficult task for the Greeks: making the structural changes needed for long-term growth.