Greece should never have been allowed to join euro: Merkel

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In a rare outburst, German Chancellor Angela Merkel has said Greece should never have been allowed to join the single currency.

Speaking at a rally ahead of elections on September 22, Merkel told a crowd of around 1,000 German voters that the debt crisis in Greece had been "brewing for many years" and blamed her predecessor, Gerhard Schroeder, from the rival social democrat party for letting Greece join the euro.

(Read more: German elections are a 'close call': Merkel)

"Chancellor Schroeder accepted Greece in and weakened the Stability Pact and both decisions were fundamentally wrong, and one of the starting points for our current troubles," media reports cited Merkel as saying at the campaign rally in the north German town of Randsburg on Tuesday.

Her comments come after the Social Democratic (SPD) party ramped up its criticism of Merkel and her handling of Greece after the country received two bailouts worth 240 billion euros ($321 billion) and reportedly needs a third to plug an imminent funding gap.

German Finance Minister Wolfgang Schaeuble said on Tuesday that estimates by the international Monetary Fund (IMF) that Greece needs a further 11 billion euros were "not completely unrealistic."

(Read more: Greece returns as hot-button issue in German election)

The head of the SPD, Peer Steinbrueck, has said Merkel is not being straight with voters over the true cost of financial aid for Greece. Despite his criticism, however, his party still trails Merkel's conservative alliance in the polls with 25 percent of the vote below 39 percent for the Chancellor.

One analyst told CNBC that the election race could still go either way, however.

"Angela Merkel has done nothing that could cost her the election but she still may only succeed marginally. There is no single issue in Germany that could make the voters go here or there so a lot is left to the moment," Josef Janning, a member of the German Council on Foreign Relations, told CNBC. "She has a good chance of winning but she can't be sure."

- By CNBC's holly Ellyatt, follow her on Twitter @HollyEllyatt