The costs to a country of leaving the eurozone would be so high that many analysts think the bloc will do everything in its power to prevent an exit, even if that requires the richest members to keep bailing out weak states.
German magazine Spiegel reported on Friday that the Greek government had raised the possibility of breaking away from the 12-year-old eurozone and reintroducing its own currency in talks with the European Commission and other member states in recent days.
The report was vigorously denied by the Greek finance ministry and officials from other member states.
Leaving the currency union would carry huge economic, social, reputational and strategic costs for Greece or any other country. Greece would have to hive off its bank deposits from the rest of the eurozone banking system as it introduced a new currency, risking a run on its banks and huge disruption for its companies.
Banks across Europe would face losses on their Greek debt.
For the bloc as a whole, it would represent a humiliating setback because the common currency is broadly viewed as the culmination of half a century of European integration.
“To me the eurozone is a one-way street,” said Gilles Moec, senior European economist at Deutsche Bank. “A breakup would have catastrophic consequences for the country that left. It would precipitate a run on the banks. I can’t see how you do it in an orderly way.”
Speculation about a possible eurozone breakup reached fever pitch last November, but predictions that the bloc will fracture have come mainly from Anglo-Saxon skeptics.
Last summer, British economist Christopher Smallwood of consultants Capital Economics produced a 20-page paper entitled Why the euro zone needs to break up and US economist Nouriel Roubini, nicknamed Dr Doom, has said eurozone members will be forced to abandon the shared currency.
Greece has struggled to meet the fiscal targets set out for it as part of its 110 billion euro (US$160 billion) bailout from the EU and IMF.
Over the past month, markets have priced in the sort of default risk that was once unthinkable for a eurozone state and expectations have risen that Greece will have to restructure its 327 billion euro debt load while other countries will have to provide more aid.
Political opposition in northern Europe to giving Greece more money and rising anger within the country at the tough austerity measures the government has put in place have created a dangerous new dynamic that has convinced more experts an exit may conceivably happen, although probably not for years.
By reintroducing the drachma, the argument goes, Greece could sharply devalue its currency against the euro and keep official interest rates ultra-low, regain competitiveness and tackle its debt problem without the political and social upheaval associated with years of austerity-fueled recession.
“I’m not suggesting that these stories are right, but we have said that we think it’s quite likely that there will be some change to the membership of the eurozone over the next four to five years and that one possible form will be the exit of a small economy like Greece,” said Jonathan Loynes, chief European economist at Capital Economics. “I don’t think the idea is implausible at all.”
However, US economist Barry Eichengreen, who authored a 2007 paper arguing that the single currency could not be undone, reaffirmed that belief last year as the Greek crisis deepened.