An insolvency mechanism should be set up for nations that are unable to manage their debts, Horst Koehler, Germany's president and a former head of the International Monetary Fund, said in an interview on Saturday.

Koehler told Focus magazine there was now a need to develop procedures for overly indebted nations similar to those already in place for companies.

He said his suggestion was not aimed at Greece, which is battling to keep a crippling debt burden under control.

It's possible that there are nations that won't be able to deal with their debt, said Koehler, who headed the IMF until stepping down in 2004 to run for the largely ceremonial post of German President.

That's why it's time to start thinking the unthinkable, Koehler added. We need an orderly insolvency process not only for companies but also for nations.

There was a risk of chaos if a nation were to become insolvent. That's why we needed an orderly process -- so that everyone knows what the rules are.

Greece's debts are nearing 120 percent of gross domestic product.

(Writing by Erik Kirschbaum; editing by John Stonestreet)