Exit stage left

There are arguments for and against a Greek exit from the eurozone. The fact is, the country has not come close to achieving previously agreed-upon consolidation goals. If the euro crisis is a crisis of confidence, some of it would be regained if donor countries drew the consequences and turned off the money faucet. On the other hand, Athens cannot meet meeting savings targets since rigid austerity policies have entrenched the economy more deeply in recession than anyone expected. Another question is if the new Greek government deserves a chance to put their reform plans to the test.

When reviewing whether Greece should return to the eurozone fold or be forced out, the pervasive issue is whether a Greek exit would be manageable. If you go and ask the experts, you'll be even more bewildered than before. The pundits have widely differing opinions, and moreover, no one can make accurate predictions since the EU has never been in this situation before.

Max Otte is a financial expert who has prophesied financial catastrophe and "fervently" hopes for a "Grexit."

"Then the European political elite will notice, it is not nearly so bad," he told national broadcaster Deutschlandfunk in an interview. "On the contrary, markets might immediately calm down."

Wolfgang Franz, a senior economic adviser to the German government, has warned that Greek withdrawal from the eurozone could result in the entire monetary union collapsing.

He recently told daily newspaper Süddeutsche Zeitung, "It is likely that financial markets would immediately start speculating about the next candidate for an exit."

German risk

On the German side of things, let's start with the calculable costs. The ifo Institute, based in Munich, estimates German losses up to 82 billion euros ($102 billion) if Greece goes bankrupt and leaves the eurozone. The calculation is based on German investments in Greece to date - both in the form of the European Central Bank's (ECB) purchase of Greek bonds, and liabilities the German Central Bank has taken on behalf of Greek banks.

The Economist magazine calculated German investment in Greece somewhat differently. The publication started with an emergency relief program for the Greek people, whose costs editors put at around 50 billion euros. The German share of the expenditures was estimated at 17 billion euros. In the event of a Grexit, German banks would have to write off this investment in the Greek state and might have to again turn to the German government for help. The final bill for Germany could come to 120 billion euros, about 4.5 percent of the German gross domestic product (GDP).

On the other hand, a Grexit means Germany and other donor countries would no longer have to shovel money into a seemingly bottomless pit. The topic of Greece would be resolved for at least a while. And that would be a bargain, as long as no more costs came up.

Incalculable costs

A Grexit would not, however, resolve the euro's structural problems. Many fear speculation against the common currency would get out of control.

"Then we would kick off an avalanche that could be dangerous for the monetary union," Franz warned.

With a market panic looming, Berlin could be forced into unleashing instruments they had previously shied away from using, starting with a banking license for the European Stability Mechanism, and ending with the creation of Eurobonds - something German Chancellor Angela Merkel never wanted to see in her life. In this scenario, the Iron Lady from Berlin would not even have time to get broad commitments from indebted countries. The risk to German taxpayers would rise immeasurably.

Thus the Economist has suggested clearing out the eurozone's stables by way of kicking the debt sinners out when Europe reaches this level of crisis. The publication has Ireland, Portugal, Spain and Cyprus in mind. In this scenario, German costs would amount to 385 billion euros, or 15 percent of the country's GDP.

Financially strong Germany, currently swimming in tax revenues, would be able to endure. However, the problem is who is to provide sufficient guarantees for investors to have confidence in the euro. What would happen to Italy, running the eurozone's second-highest debt at 125 percent of GDP?

Faced with these horror scenarios, will Merkel shy away from getting really tough on Greece? European politicians are likely to keep playing it cautiously – dithering, in the words of Otte.

"Greece will make a few cosmetic changes," he said, "and we will keep giving money."

A decision has been postponed until this fall. In the meantime, the ECB can keep helping Greece walk on water, while politicians will rely on the central bank.