Greece has 'negative credit implications' for Europe

The ongoing political turmoil in Greece in the run up to a general election has not only increased the risk of a Greek exit from the euro zone, but could also have negative credit implications for other European countries, ratings agency Moody's warned.

In a note published Wednesday, Moody's Investor Service conceded that the likelihood of Greece leaving the currency union was lower than it was during the peak of the region's debt crisis of 2012 and remains "relatively unlikely." But it warned that – if it were to happen -- "a Greek exit today would likely trigger renewed recession in the remaining euro area."

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"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," Colin Ellis, Moody's chief credit officer, EMEA, wrote in the report.

Greece is due to hold a snap general election on 25 January amid ongoing political uncertainty in the country, which Moody's said "increased the risk of a Greek exit from the euro area."

Anti-austerity party Syriza's lead in the polls has rekindled concerns around this scenario. The left-wing party has always said that it would renegotiate the terms of Greece's two international bailouts – amounting to 240 billion euros – which required the Greek government to implement tough austerity measures and spending cuts.

Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said Greek government bonds indicated a 15-17 percent probability of Greece exiting the euro zone and defaulting on its debt.

"We think (this) is a significantly extreme type of outcome," he said. "More extreme than our current baseline."

The uncertainty had already been priced in to some extent, he added. The yield on Greek 10-year government bonds—which moves inversely to prices—stood at 8.98 percent on Wednesday.

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Syriza has also signalled that it could seek debt forgiveness from its euro area peers -- something likely to be unsuccessful, according to Moody's.

"Other euro area governments are likely to reject such a request, partly because it could lead to similar demands from other highly indebted euro area countries," Ellis noted.

Although most market analysts believe that Syriza and Greece's international lenders would agree on a compromise over Greece's bailout and debt, the higher risk of a Greek exit, "could have negative credit implications for other members of the European single currency, despite contagion risks being materially lower than at the peak of the crisis," Moody's warned.

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The agency said that European politicians had "stronger tools to limit the damage from such an event," however.

Read MoreGreece in 'critical' situation as Syriza leads polls

Factors that would limit the impact of a Greek exit on other European countries include weaker cross-border links between European banks and a significant reduction in European banks' holdings of Greek government debt, Moody's said. Structural reforms undertaken by several European countries would also help, it added, and stronger safety nets have been created since the crisis first broke.

"Although, even with these tools, a Greek exit would trigger heightened market tensions and a renewed recession in the euro area," Ellis warned.

Furthermore, although the risk of contagion from any Greek exit could be limited in the short term, they would face further challenges in the medium term, Moody's said -- particularly as other euro area countries, such as Greece and Italy, are still struggling with high debt burdens and unemployment rates.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld