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Europe gets ready for another Greek drama

It could be 2012 all over again. As Greece heads to the polls in a snap general election that will determine its future in the euro zone, governments across the region appear to be piling on the pressure and stepping up the rhetoric. Markets are already feeling the tension with Greek stocks down almost 4 percent on Monday.

Over the weekend, a report in German magazine Der Spiegel said that Chancellor Angela Merkel's government was prepared for a Greek exit from the euro zone -- known as a "Grexit" -- if Greek voters elected a government on January 25 that chose to scrap the terms of the country's massive bailout program.

The report comes amid expectations that Greek voters could elect the anti-austerity party Syriza, currently marginally ahead in opinion polls, in the crucial vote later this month. The cutbacks, tax increases and reforms Syriza is fighting were imposed in return for two bailouts totalling some 240 billion euros ($290 billion). The measures have crippled the Greek economy: it has only just come out of a six-year recession and unemployment is stuck at around 25 percent.

Erbil Basay | Anadolu Agency | Getty Images

Syriza has always said it would renegotiate the terms of the rescue package – a move that would add further tension to Greece and Germany's already strained relationship caused by the latter's insistence on tough austerity measures and structural reforms.

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The multibillion-euro bailout was intended to keep Greece in the euro zone – an outcome that Germany appeared keen on in order to maintain the credibility of the single currency. But the Der Spiegel report is the first time it has been suggested that Germany would be content to see Greece leaving the euro zone, a scenario which could set a dangerous precedent for other struggling euro countries.

However, no sooner had the report appeared than the German government scrambled to deny it.

Merkel's second-in-command, Vice Chancellor Sigmar Gabriel, said on Sunday that the German government wanted Greece to stay in the euro zone and stressed there were no contingency plans to the contrary, according to a Reuters report.

Also Sunday, a spokesman for Chancellor Angela Merkel said that the German government expected Greece to stick to the terms of its international bailout agreement, Reuters reported. The spokesman, Georg Streiter, declined to comment on the Der Spiegel report, however.

'Up to the Greeks'

French President Francois Hollande stepped in to the storm in a radio interview on Monday, saying that bailed-out countries have already paid a heavy price to stay in the 19-country euro zone and it was "up to the Greeks" to decide whether to now remain a part of the single currency, Reuters reported.

The latest tensions have not escaped the attention of markets with falling to a nine-year low of $1.186 overnight, although the currency had recovered somewhat to trade at $1.1972 on Monday morning. The fluctuation was attributed to the Der Spiegel report and subsequent denial by the German government, analysts at Rabobank said in a note Monday.

Greece's equities also felt the renewed rhetoric with stocks down 3.8 percent.

European markets were trading broadly higher on Monday, however, as they seemed to focus more on the prospect that the ECB could be ready to introduce more aggressive stimulus measures, such as buying government bonds (aka quantitative easing), rather than "secular concerns" over Greece, Rabobank added.

"It would appear that investors, as well as politicians, appear to be much more sanguine about the prospect of a Grexit scenario playing out if the weekend headlines out of Germany are to be believed," Michael Hewson, chief market analyst at CMC Markets U.K., said in a note Monday.

"This does seem rather naïve given how much effort has gone into the narrative about the euro being irreversible over the last few years, and would open up the very real prospect of further departures on the basis of precedent, particularly if the country in question were to flourish outside the euro. Even so, a 'Grexit' scenario appears to be being treated as an outlier by markets for the moment," Hewson added.

'Warning sign to Syriza'

One market analyst said that reports that Germany was considering the option of a Grexit was "intended to send a strong signal to Athens" ahead of the upcoming snap election.

Carsten Nickel, a Berlin-based analyst at consultancy Teneo Intelligence, believed the report was designed to remind Greek voters of" the potential cost associated with a vote for Syriza" while also sending "a first warning sign" to the party's leader, Alexis Tsipras, that Germany could not be "blackmailed" over changes to Greece's bailout program if his party won the election..

"What is clear is that any potential negotiations between Tsipras and Berlin would be protracted due to the high domestic political stakes in both countries. As long as the impression of blackmail is avoided, and Tsipras proves to be flexible on his end, however, there remains room for an eventual deal," Nickel believed, including, "the future potential for further implicit debt relief in return for commitment to structural reform."

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- By CNBC's Holly Ellyatt, follow her on Twitter Read More@HollyEllyatt. Follow us on Twitter: @CNBCWorld