Officials from German Chancellor Angela Merkel's coalition sent a tough message to Greece on Monday that it might have to leave the euro zone if it fails to meet conditions for its bailout package.
A top Merkel aide signalled the chancellor's support for the leaders of her two centre-right coalition partners, after they spoke publicly on the option of Greece departing from the currency bloc or carrying out an orderly bankruptcy.
Economy Minister Philipp Roesler, who leads junior coalition party the Free Democrats said in an article for daily Die Welt that to stabilise the euro there could "no longer be any taboos."
"That includes, if necessary, an orderly bankruptcy of Greece, if the necessary instruments are available," Roesler, who is also deputy chancellor, added.
Merkel spokesman Steffen Seibert said this was also the government's view.
"(The minister) expressed in his own words what the goals of the entire German government are. … There is great unity within the government."
Horst Seehofer, head of the third party in her coalition, the Christian Social Union, last week was the first top German politician to suggest publicly Greece may leave the euro.
"The good relationship between the chancellor and the president of the CSU is reflected in many, many conversations and this will of course be a subject when they next talk," Seibert said.
Seehofer, who was meeting his Bavarian party's leadership on Monday to approve a new policy paper threatening to eject over-indebted states from the euro zone, said he liked the direction of the debate.
"I am pleased people have been speaking out on these issues," he said in Munich.
GREEKS MUST DECIDE
While many analysts have long said that Greece would eventually have to default, signs that German leaders could allow this to happen earlier than previously thought have prompted selling of European banking shares and the euro.
The FDP and CSU have taken a tougher line on euro-zone bailouts than many inside Merkel's own conservative Christian Democratic Union (CDU), but a senior member of her party said he agreed that Greece might have to think the unthinkable.
"The situation is very serious, more than some had thought," said conservative parliamentary floor leader Peter Altmaier, who is from the CDU.
Greece would only receive the next tranche of aid if it convinces the "troika" inspectors from the European Commission, European Central Bank and International Monetary Fund that it is tackling its debt, Altmaier said.
"Exclusion from the euro zone is not legally possible at the moment," he said. "That means the Greeks must decide themselves if they stay in the euro zone or if an exit is better for them."
A source at this weekend's G7 finance chiefs' meeting in Marseille said EU, ECB and IMF inspectors, who suspended talks with Athens last week, would probably find a formula in their progress report to allow the next 8 billion euro ($11 million) tranche of bailout funds to be paid in October.
That would keep Greece going for a few more months until European parliaments approve new powers for the European Financial Stability Facility (EFSF) rescue fund to give preventive credit lines to euro zone member states, buy bonds in the secondary market and lend money to recapitalise banks.
But the source said the German finance ministry was increasingly convinced that Greece will not be able to avoid default for much longer. If that is so, ring-fencing the euro zone's weakest debtor and limiting contagion will be crucial.
The FDP's deputy leader Christian Lindner said no option should be off the table if Greece does not meet its bailout conditions and the euro zone rescue fund should not be used.
"The safety net was conceived for countries that are willing and able to get out of debt," he said. "Countries that are not, or are incapable, cannot expect emergency aid. They need other ways, and here no ideas can be ruled out."
