Europe may need to sacrifice Greece's membership of the single currency in order to convince Germany to put in more money to save the euro, Britain's finance minister George Osborne has suggested

As the EU's biggest economy and largest contributor, Germany holds the key to how the bloc can rescue its troubled, smaller economies and whether Europe is able to agree on a banking union to end 2.5 years of debt turmoil.

Britain and the rest of the European Union have clashed repeatedly over how to fix the crisis, with London refusing bluntly to take any part in any euro zone banking union.

“I ultimately don't know whether Greece needs to leave the euro in order for the euro zone to do the things necessary to make their currency survive,” Mr Osborne said in remarks published today in the Times newspaper.

"I just don't know whether the German government requires a Greek exit to explain to their public why they need to do certain things like a banking union, euro bonds and things in common with that."

Despite its tough rhetoric, Britain is in an awkward position in its dealings with the EU because it is not a member of the euro zone, yet the fate of its economy is tied closely to the future of the single currency union.

Yesterday, European Council president Herman Van Rompuy said the the union would do all it can to keep Greece in the euro zone if it respects its bailout commitments.

Mr Osborne's comments came just days ahead of an election in Greece seen widely as a referendum on whether it should stay in the euro zone, or leave and go back to its old drachma currency.

Euro zone rescue funds are already stretched by supporting Greece, Portugal, Ireland and now also Spain, after euro zone finance ministers agreed on Saturday to lend it up to €100 billion to recapitalise its banks.

Mr Osborne - who had earlier urged the euro zone to use its bailout fund to recapitalise Spain's troubled banks directly - described the deal as "too little, too late".

"If you do it via the Spanish sovereign, then you are not going to convince the market the Spanish sovereign is entirely credible...and yet they went ahead down this route," he said.

Reuters