What happens when power steering loses pressure?

I have a 1992 240 wagon. Today I noticed that steering had become rather hard and after refilling the reservoir, realized that there appears to be a hole in the pressure line that runs in front of the steering gear - when the car runs, fluid sprays from it.

When all the fluid is gone, will the effect just be that there's no power, but steering will still actually work? Can more damage be done to the car from this?

Thanks, Patrick Keenan