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Grexit to drachma would be dangerous: Larry Summers

Grexit a 'danergous experiment': Larry Summers
Grexit a 'danergous experiment': Larry Summers

With Greece just hours away from missing a $1.7 billion loan payment to the International Monetary Fund, the dire debt crisis there is a "sad story of mutual intransigence," former Clinton Treasury Secretary Larry Summers said Tuesday.

"It seems to me that everyone needs to lift themselves up," Summers told CNBC's "Squawk Box" in an interview. "There needs to be a vision for how Greece can grow at a reasonable rate out of the hole it's in, which is worse than the American Great Depression was."

Read MoreGreece lifelines run out as IMF payment looms

The former Obama administration economic advisor also warned that an exit from the common euro currency and a return to the drachma would be a "very dangerous experiment."

"It's certainly true that a currency that could be devalued could increase competitiveness. That could help Greek exporters. It would remove some important excuses for Greek failure," said Summers.

But it's hard to see how the Greek banking system, currently under capital controls, would survive a switch to a new currency, he argued, which would bring a "very substantial reduction in real wages and in pensions."

The European Commission has put forth a last-ditch deal, under which Greek Prime Minister Alexis Tsipras would be required to encourage voters in Sunday's national referendum to support the reform-for-aid conditions imposed by creditors.

The current Greek bailout runs out at the end of the day.

A political calculation seems to be figuring into the exit option for Tsipras, said Larry Lindsey, former director of the National Economic Council for President George W. Bush.

"If they can work through that pain quickly, if they can devalue, then maybe by the time [Tsipras] is up for election again, things will be looking up," the CEO of economic advisor The Lindsey Group told CNBC Tuesday.

For his part, Summers said he hopes the "marriage between Greece and Europe" can be saved because a "divorce" would forever change the euro zone. "A Greece less tethered to the euro zone would become a much more uncertain place," which would inhibit investment there.

That said, the contagion risks of a Greece exit from the euro would be "less grave financially" than it would have been a few years ago, he added.