Greece must surrender control of its budget policy to outside institutions if it cannot implement reforms attached to euro zone rescue measures, the German economy minister was quoted as saying on Sunday.
Philipp Roesler became the first German cabinet member to openly endorse a proposal for Greece to surrender budget control after Reuters quoted a European source on Friday as saying Berlin wants Athens to give up budget control.
We need more leadership and monitoring when it comes to implementing the reform course, Roesler, also vice chancellor, told Bild newspaper, according to an advance of an interview to be published on Monday.
If the Greeks aren't able to succeed themselves with this, then there must be stronger leadership and monitoring from abroad, for example through the EU, added Roesler, chairman of the Free Democrats (FDP) who share power with Chancellor Angela Merkel.
Reuters reported on Friday that Germany wants Greece to give up control of budget policy to European institutions as part of discussions over a second rescue package.
Greece, which has repeatedly failed to meet the fiscal targets set out by its international lenders, is in talks to finalise a second 130 billion-euro (109 billion pounds) package.
With many Greeks blaming Germans for the austerity medicine their country has been forced to swallow, officials in Athens dismissed the idea of relinquishing budget control as out of the question.
Finance Minister Evangelos Venizelos said on Sunday Greece was perfectly capable of making good on its promises.
Anyone who puts a nation before the dilemma of 'economic assistance or national dignity' ignores some key historical lessons, he said in a statement before heading to Brussels for a European Union summit on Monday.
The Financial Times reported on Saturday that it had obtained a copy of the proposal showing Germany wants a new euro zone budget commissioner to have the power to veto budget decisions taken by the Greek government if they are not in line with targets set by international lenders.
Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time, the document said.
Under the plan, Athens would only be allowed to carry out normal state spending after servicing its debt, the paper said.
Crushed by 350 billion euros ($462 billion) of debt and running out of cash quickly, Greece is scrambling to appease the troika of its official lenders - the European Commission, European Central Bank and International Monetary Fund - and stitch up a deal with private creditors simultaneously.
Greece needs to strike a deal with creditors in the next couple of days to unlock its next aid package in order to avoid a chaotic default.
A government source in Berlin said Germany's proposal was aimed not just at Greece but also at other struggling euro zone members that receive aid and are unable to make good on their obligations.
The European Commission, the executive arm of the 27-country bloc, said it wanted the Greek government to maintain autonomy.
(Editing by Alessandra Rizzo)