Greece, Portugal to Leave Euro Zone: Economist

The euro currency does not work for Greece or Portugal and they will eventually leave the euro zone, an economist told CNBC.

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European Union Flag

"They will leave the euro but stay within the European Union because it is very difficult to leave the EU in terms of security policy and foreign policy. You want to be part of it but only linked to it and that is increasingly what a number of countries want to do," Steen Jakobsen, Chief Economist at Saxo Bank said.

Jakobsen said that some countries within the euro zone would rather be one of the 10 that are currently outside of the zone but form part of the broader 27 countries of the EU.

However, Paul Donovan, Deputy Head of Global Economics at UBS, disagreed that there would be any benefit for any country to leave the euro zone and legally would be impossible.

"The legal opinion is clear if you leave the euro, you leave the EU. What good does it do to leave the euro zone? If you de-value the drachma what good does it do you? No one will trade with you or give you trade finance.

It would be utterly devastating when the financial system implodes," Donovan said.

He added that it would be better to be bankrupt inside the euro zone than bankrupt outside it with a military government.

Jakobsen said these arguments against leaving were not supported by history and were "utterly wrong".

"First of all there is a significant amount of local money from Greece now positioned in the U.S., Germany and elsewhere. If it was devalued this money would be flowing in and buying utilities, railways and telecom companies. If there was devaluation there could be huge advantages for companies," he added.

Greece remains in talks with its private creditors and reports suggest a deal where private bond holders accept a loss of between 65 to 70 percent on their bonds is nearing agreement.

Stephen Gallo, Head of Market Analysis at Schneider Foreign Exchange added a "big decision" regarding Greece had been expected for some time.

"A general consensus has been looming large in the markets that some kind of decision on Greece and its future within the euro zone as well as fiscal integration would have to be made soon.

There is always the chance that Greece defaults before the end of the first quarter and what is not clear is what the level of contagion might be like," Gallo said.

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