Merkel rejects calls for 'orderly insolvency' of Greece

German Chancellor Angela Merkel has rejected calls for the "orderly insolvency" of debt-stricken Greece she tried to calm financial markets and defuse a crisis that threatens to tear apart her Centre-Right coalition government.

Resolving the crisis will require a "very long and step-by-step process" involving budget restructuring, restoring confidence in financial markets, improving competitiveness and other measures, she said on Tuesday after a meeting with Finland Prime Minister Jyrki Katainen in Berlin.

She was referring to demands by some of her coalition partners, especially Philipp Roesler, Minister for Economic Affairs and Chairman of the Free Democratic Party, who proposed that Greece needed an "orderly insolvency" and said forcing the country out of the euro zone should be considered as the last step to protect the rest of the 17-nation group.

His comments unleashed a massive sell-off of shares and stock market indices plunged across Europe on Monday, but they recouped most of their losses on Tuesday.

Without mentioning Roesler, the chancellor urged her coalition partners to exercise great caution in voicing their views on Greece and to be aware of the consequences of their actions.

"Otherwise, they will be putting the euro zone in a grave situation," she said.

She said in a radio interview earlier that an uncontrolled bankruptcy of Greece, which could have a domino effect on other countries, must be prevented at any cost.

Therefore, everybody must be very careful in their choice of words.

"What we don't want is further turbulence in the financial markets," she said.

In spite of Merkel's criticism, Roesler on Tuesday renewed his call for an "orderly default" by Greece.

Germany wants Greece to remain in the euro zone, but that will be possible only when its economic efficiency is restored, Roesler told journalists in Berlin.

Roesler was supported by Wolfgang Bosbach, the parliamentary leader of Merkel's Christian Democratic Union (CDU), who said he did not rule out the possibility of a Greek debt default, even though that is not a political goal.

In a TV interview, he also criticised Merkel's handling of the euro zone debt crisis.

Merkel's coalition partner Horst Seehofer, the leader of the Bavarian Christian Social Union (CSU), has also spoken in favour of an orderly Greek insolvency.

The split in Merkel's coalition over handling of the Greek debt crisis comes as she has been mobilising support from her coalition partners for a crucial parliamentary vote on expanding the EU's bail-out fund for euro zone nations at the end of this month.

Several MPs of her ruling coalition have threatened to vote against a bill endorsing a decision by the euro zone leaders on July 21 to expand the bail-out fund.

A trial vote last week showed that the coalition was still short of more than 20 votes from its own ranks for the Bill to pass and if that happens during the upcoming vote in the Bundestag, the government will be forced to step down and call a re-election two years before its current term expires.

German Finance Minister Wolfgang Schaeuble rejected calls for forcing Greece to leave the euro zone and urged the government in Athens to contribute to the stability of the common currency by fulfilling its commitments when it received a 110 billion euro bailout in May last year.