The cost of Greece exiting the euro would be unmanageable and probably exceed the €1 trillion ($1.66 trillion) previously estimated by the Institute of International Finance, says the group's managing director.
The Washington-based IIF's projection from earlier this year was "a bit dated now" and "probably on the low side", Charles Dallara said.
"Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again."
The European Central Bank's exposure to Greek liabilities was more than twice as big as the ECB's capital, said Dallara, who represented banks in their negotiations with the Greek Government on its debt restructuring.
As a result, he predicted the bank would be unable to provide liquidity and stabilise the euro-area financial sector.
"The ECB will be insolvent" if Greece were to exit the euro, he said.
"Europe would have to first and foremost recapitalise its central bank."
Concern about Europe's crisis has erased about US$4 trillion from global equity values, as policymakers continue to argue over how to stabilise the 17-nation euro area.
EU President Herman Van Rompuy last week said that contingency planning for Greece leaving the euro "isn't a priority", while Morgan Stanley economist Elga Bartsch has said Greece has a one-in-three chance of a euro exit.
In February, the IIF estimated that Greece's liabilities, in the event of a euro exit, could be crippling.
"It is hard to see how they would not exceed €1 trillion," the group said in an internal February 18 report that has not been made public.
Spain, Italy and already-bailed-out Ireland and Portugal "remain quite vulnerable to changes in market sentiment" as Europe's sovereign debt crisis continues, Dallara said.
He urged policymakers to remember the shockwave caused by the failure of Lehman Brothers, and that what appeared to be a "containable event" might in fact bring on financial meltdown.
For Greece, in its fifth year of recession, it might be more effective to offer extra money to help its battered economy recover, Dallara said.
Because Greece's economy had shrunk so much faster than expected, it might need more time to repay its international loans, he said.
Greece's shrinking economy could be aided "at a cost" of an additional €10 billion.
"We're talking about very modest sums compared to what's already on the table," Dallara said.
"A small olive branch here carefully defined, nuanced in its presentation, not as an alternative to fundamental reform but a recognition that some elements of this programme were not that well designed, would be a wise thing and I would do it sooner rather than later."