Could Europe decide our election?

The fate of President Obama's re-election is probably in the hands of a few European leaders who will decide in the coming months how far they are willing to go to save the euro.

The coming "Grexit," or Greek exit from the euro could be far more damaging than previously realized. Spain's banking sector is under enormous pressure and hints that Greece might leave the euro have Spanish depositors fleeing their own banks for safe havens in sturdier corporations in Germany and elsewhere. Just last week, the Spanish government took over the 4th largest bank and number one mortgage lender Bankia. This caused a $1 billion run on the bank's deposits.

There are also concerns about Italy's tottering banks and weakness in the French banking sector as well. No one knows what will happen to these banks if Greece were to return to the drachma. What is clear, is that any such move will cost hundreds of billions of dollars - most of it underwritten by an increasingly reluctant Germany through the European Central Bank.

And the uncertainty might also affect European imports from America - imports from companies in swing states that Obama must win in order to get re-elected.

Reuters:

Manufacturing growth, surging exports: These are central promises of Obama's reelection bid, especially in blue-collar industrial states that could determine the election.

Mindful of the Indiana surprise of 2008, when a spike in unemployment helped Obama win the reliably Republican state, the White House has every reason to fear payback in states like Ohio, this time from any deepening of Europe's financial crisis.

Already there are warning signs. One in four of Miller Weldmaster's machines is sold in Europe, and sales are down 5 percent so far this year. A further drop could force the company to consider layoffs.

"We've taken a sigh of relief - we've been over the crunch," says Jeff Sponseller, the company's vice president of sales and marketing. "The chance that this could happen again brings a lot of anxiety."

Other Ohio manufacturers share that concern. Royal Phillips Electronics, which exports X-ray machines from a 1,200-employee facility near Cleveland, warned in April that budget cuts and other austerity measures in Europe could hurt demand for its products. Glassmaker Owens-Illinois Inc, based in Perrysburg, said Europe's volatility could hit its earnings as well.

The U.S. Commerce Department estimates that more than a quarter of all manufacturing workers in Ohio depend on exports for their jobs.

Against this backdrop, the Obama administration has been involved in intense, behind-the-scenes maneuvering to steer Europe away from the financial brink.

For the past two years, Treasury officials, including Treasury Secretary Timothy Geithner, have crisscrossed the Atlantic in pursuit of solutions to Europe's problems. The president has also been actively involved, speaking to European leaders by phone at key moments in the region's crisis.

For now, the technical details of a Grexit are still being worked out. But Greece may have one shot at staying in the euro zone. There is talk by the two major parties that the election next month should be a referendum on staying in the euro zone. The radical socialist Alexis Tsipras can talk all he wants to about his refusal to back the austerity measures negotiated last March in return for 120 billion euro bailout not costing Greece its place in the euro zone. But the facts aren't on his side; the EU/IMF/ECB troika have made it very clear that if Greece reneges on the deal, bail out money will stop.

When presented with the choice, it is believed that most Greek voters will return to their old loyalties and back the two establishment parties who were pummeled in the elections on May 6. That's the theory, anyway. The austerity measures are so unpopular that the major parties believed it better not to give the Greek voter such a stark choice last time around.

This time, with their backs against the wall, they may not have any leeway to do otherwise.

As for a Grexit sabatoging the Obama campaign, this is a real possibility if a Grexit causes a bank meltdown similar to the one that led to the Great Recession back in 2008. That worst case scenario is uppermost in the minds of Obama's campaign team as events unfold in Europe that will decide the fate of the continent for decades to come.