The damage to the rest of Europe (Chicago Options: ^REURUSD - news) from Greece leaving the euro would be "somewhere between catastrophic and Armageddon", the chief negotiator for the body representing private sector holders of Greek bonds said on Wednesday.
Charles Dallara, who as head of the International Institute of Finance (IIF) spent months in Athens negotiating the largest ever sovereign debt restructuring, also said he had seen evidence that more people were moving their cash out of Greece.
"There has been a pick up of deposit flight from Greece," Mr Dallara told reporters, but added he thought this could be stabilised "once you get a new government in place, if that government reaffirms its intention to remain in the euro zone".
He was speaking on a visit to Ireland (Xetra: A0Q8L3 - news) , which followed Greece into an international bailout in 2010 but has been far more successful in boosting exports to keep the economy afloat while slashing government spending.
Policymakers have begun to speak openly of the risk that Greece, now in its fifth year of recession, might leave the euro. Mr Dallara said the costs of a Greek exit would be so severe that Europe has to find a palatable way of solving their woes.
"I think that it (a Greek exit) is possible, but I wouldn't call it inevitable and I wouldn't even call it likely because the costs for Greece, for Europe and for the global economy are likely each in their own way to be immense," Mr Dallara said in a speech.
"The pressures on Spain, Portugal, even Italy and conceivably Ireland could be immense and the need for Europe to step up with much greater support for the banking systems would be substantial."
Mr Dallara said there was no game plan for an orderly Greek departure and that its rescue programme should instead be "adjusted to new realities" with a stretching out of fiscal targets by a year or 18 months, something that would cost Europe another €6 to €10bn.
He recommended easing the pace of budget reform elsewhere, particularly in Spain and Portugal, saying Europe needed to focus less on short-term cuts and more on implementing difficult labour market reforms.
He also proposed Europe's rescue funds should invest directly in weak financial institutions, particularly in Spain which he praised for "heroic efforts" to manage the crisis.
On Greece's decision on Tuesday to pay bondholders who rejected an earlier debt exchange, Dallara said such a move raised concerns but reflected "the most extraordinary set of political uncertainties".
He said Greece, heading for a second election in a matter of weeks next month, should be given some breathing space.
"I think it is incumbent on the rest of us - and I would suggest that includes other European leaders - to pause in what has become a very popular game of telling the Greeks how to run their lives," Mr Dallara said.