Ifo Institute chief: Europe needs to let Greece go bankrupt

Europe needs to let Greece go bankrupt within its borders, and keeping Greece in the euro zone could be riskier than letting it go, Hans Werner-Sinn, the president of the influential Ifo Institute for Economic Research in Germany said.

While Greece is currently facing a funding crisis which has raised expectations that the country could be heading towards bankruptcy, default and a possible exit from the euro zone, the Ifo Institute's head considers that could be the best possible outcome for the country, following yet another round of inconclusive talks over reforms between Greece and its lenders this weekend.

"If one accompanies this exit with the help of the European community, with the promise to keep the gate open for Greece to return at a later point in time, this may well be a chance to regain the competitiveness of the country by devaluation," Sinn said in an interview with CNBC.

"There are not only risks of exiting – there are lots of opportunities – and there are lots of risks by continuing the way Greece has operated thus far," he said, speaking from Frankfurt.

Although analysts have been betting on a Grexit for some time, euro zone leaders have been demonstrating their commitment to keeping Greece in the union – particularly as an exit could set a dangerous precedent for other member states.

Sinn believed, however, that precedents could appear anyways.

"There is contagion of a political kind if Greece stays in the euro because it would tell us that you don't have to obey rules, that money will always be available if you make mistakes and are not competitive. But this cannot be the case," he said.

"We have to allow for bankruptcy in the European Union, just as the Americans do it. If California goes bust, for example, no one will help - the U.S. Federal Reserve will not come to buy Californian government bonds…We need principles like that in Europe."

Greece is now running out of cash and has loan repayments to make in May to one of its lenders, the International Monetary Fund. It could struggle to make those payments, however, as well as meeting its domestic wages and pension bills.

Jacques Cailloux, Chief European Economist at Nomura, told CNBC that despite Greece's increasingly solitary position in Europe, a political solution could come from within the country by June.

"There is a united front against Greece at this stage from…the Europeans (and) the international creditors, so I think that's putting the pressure on Greece," he said adding that a referendum could be held within Greece by June to let the people decide whether or not they should stay in the euro zone and accept austerity as a result.

"Most of the polls are suggesting they would say 'yes' (to saying in the euro)," he said. Contrary to Sinn, Cailloux said a Grexit would have a "pretty long-lasting damaging impact on the rest of the euro zone."