He also said that the Bundesbank, whose chief ECB President Mario Draghi singled out earlier this month for expressing reservations over the bank's new bond-buying plans, was not isolated in Europe.

The comments on Greece from the ECB executive board member, Germany's deputy finance minister until he took the post at the end of last year, sum up a growing debate in Berlin on the possibility of cutting Greece free.

Most would prefer not to, but an increasing number of MPs and influential figures have come out of the woodwork saying the euro zone is strong enough to deal with the fallout.

"Firstly, my clear preference is that Greece should remain in the currency union," Asmussen was quoted as saying in an advance copy of an interview due to appear in Germany's Frankfurter Rundschau on Monday.

"Secondly, it is in Greece's hands to ensure that. Thirdly, a Greek exit would be manageable."

But Asmussen also warned that a so-called Grexit would not be as orderly as some imagined: "It would be associated with a loss of growth and higher unemployment and it would be very expensive - in Greece, Europe as a whole and even in Germany."

He also said it would be good if the euro zone's permanent bailout mechanism, the European Stability Mechanism (ESM), successor to the European Financial Stability Facility (EFSF), were up and running as soon as possible.

"The ESM is a better instrument for dealing with the crisis than the EFSF," he was quoted as saying.

Germany's Constitutional Court has said it will deliver its ruling on whether the ESM and the fiscal pact are compatible with the German constitution on September 12. Germany cannot legally ratify the two treaties without the go-ahead from the court and the ESM cannot come into effect without German backing.

On euro zone bonds, Asmussen said such common debt was only logical in a full fiscal union and added that they were not crisis management tools.

BOND BUYING PROGRAMME

Draghi indicated earlier this month that the euro zone's central bank may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but not before September and only if governments activated the euro zone's bailout funds to join the ECB in buying bonds.

Whether the plan goes ahead at all, however, remains largely a question of whether leaders in Germany - whose own central bank opposes bond-buying - agrees over the course of a series of key meetings next month.

Whereas Draghi said that Bundesbank chief Jens Weidmann had been the only ECB policymaker to register reservations against the bond-buying proposals at this month's meeting, Asmussen hinted that the division may not be as clear cut.

"No-one should try to give the impression that the Bundesbank or its president is isolated," said Asmussen, adding that he and Weidmann worked closely together and trusted each other.

Noting that Draghi had not said the new bond-buying programme would be limited in terms of time and volume, the paper asked Asmussen if this meant it could be successful as it would be unlimited.

"You heard him correctly. But wait and see. We are working on further details of the new programme and we will discuss this at our next meeting," Asmussen replied.

(Reporting by Michelle Martin and Paul Carrel; Editing by Alessandra Rizzo and Patrick Graham)

• A Permanent Economic Emergency