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A person begs on the steps of the Syntagma Square on November 3, 2011 in Athens, Greece. Greece stands on the brink of economical collapse as political disagreements continue concerning the financial aid package proposed by EU. Greek Prime Minister George Papandreou is facing calls for his resignation from within his own party and has suggested that the intention to hold a referendum on the EU deal may be dropped. Oppostion parties have proposed the possibility of a new coalition government but only if Papandreou resigned (Getty Images)
Toss Greece out of the eurozone, and save both the country and the single currency, some analysts argue. But others warn such a radical solution would spell danger for the entire monetary union.
When Greek Prime Minister George Papandreou tested the patience of his European peers by threatening a referendum on a debt rescue, top politicians bluntly told Athens to choose between the euro or divorce.
Although Papandreou backed down, his sickly nation remains under threat and under pressure to press ahead with painful austerity measures despite a drawn-out recession.
Buried under 350 billion euros of debt, worth 160 percent of gross domestic product, Greece is far from digging itself out of danger from a destructive default and a disgraceful exit from the eurozone.
Leading economists such as New York University professor Nouriel Roubini and Hans-Werner Sinn, head of Germany's Ifo economic research institute, argue a separation is the best answer for Athens to avoid total chaos.
By dropping the euro and returning to the drachma, Greece could depreciate its currency, thereby restoring solvency, competitiveness and growth, even if it means that banks would pay a heavy price.
But eliminating the weakest link in the euro union will not shield fragile economies such as Italy and Spain from ruthless markets betting on their financial demise, other experts say.
"I think it will be completely disastrous, partly because there is no mechanism for such an exit," Sonny Kapoor, managing director of the Re-Define think tank, told AFP.
"I fail to see how any positive thing could come out of it," he said. "The question will simply move to, 'who is the next weak link?'"
Throwing Greece out of the eurozone would spark a run on banks, with Greeks lining up to withdraw their last euros before they turn into heavily depreciated drachmas, analysts say.
Investors would then lose confidence in other eurozone nations because it would open the door for them to leave the 17-nation bloc too.
Italy's borrowing costs would shoot through the roof while a euro deposited in an Italian bank would no longer be considered to have the same value as a euro invested in Germany, Europe's steady economic powerhouse.
"In the worst case a bank run could start in Italy as well, culminating in a sovereign and banking crisis, which could be too big to absorb," said Zsolt Darvas, an economics expert at the Bruegel think tank.
Italy, the eurozone's third biggest economy, has seen its interest rates skyrocket in recent weeks with investors doubting Prime Minister Silvio Berlusconi's commitment to implementing tough austerity measures.
Analysts have warned that after bailing out Greece, Ireland and Portugal, Europe may lack the means to save such big economies as Italy's and Spain's.
The rescue package that Papandreou wanted to put to a popular vote was agreed by European leaders last week to prevent catastrophic contagion by boosting the eurozone's bailout fund and offering Greece a new 230-billion-euro lifeline.
"Why have we supported (Greece) until now? It certainly wasn't for philanthropic reasons but because there are extraordinary links between eurozone nations," said Philippe Brossard, head of Macrorama economic research firm.
"While we could get the satisfaction of saying 'we got rid of the Greek problem', this scenario is costly for everyone with a contagion effect, notably for Italy," Brossard said.
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