'Greece Should Default But Remain In Euro'

Greece should default on its debt and negotiate a relaxation of the austerity measures demanded by the eurozone, a former policymaker of Argentina has advised.

Mario Blejer, who led Argentina from bankruptcy to double-digit growth, told Sky News it was "impossible" for Greece to operate in a situation where the debt, after the recent voluntary restructuring, still stood at around 160% of GDP.

"In addition to that it (the debt-to-GDP ratio) is not going down because the output is shrinking faster than the debt," he said.

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The former head of the central bank of Argentina which defaulted on its debts in 2001, outlined the similarities between the economic crisis in Argentina ten years ago and the current one in Greece.

These included a strong lack of confidence and credibility, the accumulation of large debt and the loss of competitiveness because of fixed exchange rate.

However, there are also big differences - namely Greece is tied into a currency union with other nations whereas Argentina was just pegged to the dollar, he said. Argentina was also able to balance its budget soon after its devaluation, which Greece is unlikely to be able to do.

Dr Blejer also described what it was like in Argentina following the debt default. He said people could not withdraw money from the banks, unemployment was high and poverty rose, a situation similar to that in Greece .

He advised that Greece restructure its remaining debt but remain within the single currency bloc.

Meanwhile politicians have been lining up to urge Greece to remain in the single currency.

The man who negotiated Greece's original bailout for Greece, former finance minister   George Papaconstantinou , has also warned that it would be an "utter catastrophe" for his country to leave the euro, and Notis Mitarakis from the country's New Democracy party said it was crucial for Greece to remain within the eurozone.

"We need to tell people the truth," he said..

"The truth is that Greece has a competitiveness problem, and Greece has a fiscal problem. So by restarting the economy - within the eurozone, within the European environment - is the only solution for Greece to see things going forward.

"If we turn the agreement and see ourselves thrown out of the eurozone then you'll see enormous hyperinflation and poverty will increase in Greece fundamentally."

Prime Minister David Cameron said the vote on June 17 would represent a vote on whether the Greek people want to remain .

A meeting of leaders of the G8 at the weekend pledged their support for debt-stricken Greece to stay in the eurozone and vowed to "take all necessary steps" to try to combat the deepening economic turmoil in Europe, adding that the imperative was to promote growth and jobs in the single currency bloc.

But foreign exchange markets are already paving the way for Greece to leave the euro.

James Hickman, a currency trader from Caxton FX, told Sky News that there was a 70% probability that Greece would go back to the Drachma within the next two years.

He reassured tourists travelling to Greece over the summer that they should expect the euro to still be in place.