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Greek Default 'Would Mean the End of the Euro': Analyst

The domino effect of a Greek default is almost inevitable because of the integrated banking system within Europe, a consultant told CNBC Thursday.

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The plan to recapitalize banks has to be big enough to cover a default by Greece, Ireland and Portugal and possibly Spain and Italy, Erik Britton, director at Fathom Consulting, said.

"The issue is that those individual countries are not solvent to deal with this," Britton added.

He said that the disorderly default of Greece would mean the end of the euro and that the idea that such a default could be ring-fenced neatly was fanciful.

"The Germans have to accept that they will have to transfer [funds] to the other countries with impaired banking sectors that cannot afford to pay," he said.

Britton said that Credit Default Swaps (CDS) prices already show close to 100 percent chance of a default for Greece and once that happens, it would spread to Portugal and Ireland and possibly Spain and Italy.

He dismissed plans to expand the European Financial Stability Fund (EFSF) , a vehicle financed by euro zone members, created in May of last year, that is designed to provide financial assistance to euro zone states suffering economic difficulty.

"In itself it is not a solution to this problem, in the longer term it makes the problem worse for peripheral sovereign states, since it increases their total indebtedness which is already too high," Britton said.

Buying Time

Britton said the expansion of the EFSF is only a time-buying exercise for euro zone policymakers until they can replace it with the European Stability Mechanism (ESM), which makes explicit allowances for countries to go into default but remain in the euro.

"Until Germany accepts that they have lent too much money and they will not get all of it back there is no solution, just a series of sticking plasters to sustain us until 2013 when the EFSF is replaced by the ESM," Britton added.

In a speech to the European Parliament on Wednesday, European Commission President Jose Manuel Barroso stressed the need to recapitalize the region's banks as part of his "roadmap to restore confidence in the euro area." Britton said the continual borrowing by Greece from the EFSF was just increasing its total unsustainable debt burden, suggesting a haircut of 71 percent would be necessary to make the country's debt manageable.

Megan Greene, head of European economics at Roubini Global Economics, told CNBC that it was just a matter of time before Greece defaults and leaves the euro zone.

"Greece will get this next tranche of funding but come December when the Troika (the International Monetary Fund, the European Central Bank and the European Commission which oversees Greece's fiscal austerity program restructure) is back in Athens to assess the government's progress and doesn't find any, the core countries will find it very hard to justify giving Greece more money and Greece will have to leave," Greene said.

She added that there would be a ripple effect across the euro zone and in 5 to 10 years there would be no euro zone.

"They need fiscal union and euro bonds and they are not doing, when push comes to shove the countries in the core will look after their own and will not push for fiscal union," Greene added.