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German lawmakers back starting talks on fresh Greek aid in test votes

* Schaeuble says temporary Grexit may still be better option

* German lawmakers to vote on opening talks on Friday

* Conservatives, SPD back starting negotiations in test votes

* Merkel faces growing resistance from conservative bloc (Recasts with conservative and SPD test ballots)

By Holger Hansen and Andreas Rinke

BERLIN, July 16 (Reuters) - Conservative and Social Democrat lawmakers voted overwhelmingly in favour of starting talks on further aid in test ballots on Thursday even though German Finance Minister Wolfgang Schaeuble questioned whether Greece would ever get a third aid package.

Both Chancellor Angela Merkel's conservative bloc and her Social Democrat (SPD) junior coalition partner strongly backed giving Berlin a green light to start talks on a third multi-billion euro aid package in test votes, sources in these parliamentary factions said.

As a result, Merkel is likely to get the mandate from the Bundestag lower house of parliament on Friday, with some opposition parties also expected to vote 'Yes'.

But she faces a revolt within her own conservative ranks where an increasing number of lawmakers doubt that Athens will implement reforms and can one day stand on its own again.

In a sign of frustration with Athens, 48 conservatives in the test vote opposed new negotiations, according to participants. During a five-hour debate, many critics expressed doubt about the Greek government's willingness to implement reforms. In February, 29 conservatives voted against an extension of Greece's second bailout.

Both Merkel and Schaeuble had urged conservatives to back the deal that was reached in Brussels, a source said, with the chancellor stressing that Germany had left its mark on the agreement and it included strict reform conditions and supervision of Greece.

Merkel also defended Schaeuble for having kicked off a debate about a 'Grexit' when he suggested that Greece could take a "time-out" from the euro zone if it failed to meet conditions, and she said this had made clear to the Greek government what the options were, a source told Reuters.

Schaeuble has submitted a request to parliament to agree to opening talks, but he has said it would be hard to make Greece's debt sustainable without writing some of it off - an idea Berlin considers to be illegal as long as Greece remains within the euro zone.

"We will now see in the negotiations whether there is even a way to get to a new programme taking into account (Greece's) financing needs, which have risen incredibly," Schaeuble told Deutschlandfunk radio on Thursday, a day after the Greek parliament passed austerity measures needed to open negotiations on financial aid.


The International Monetary Fund is leading calls for a deep reduction in Greece's debt.

Schaeuble, who has raised the idea that Greece take a "time-out" from the euro zone, said a debt "haircut" or write-down would be incompatible with the currency union's rules. "But this would perhaps be the better way for Greece," he said.

The proposal for a temporary 'Grexit' has caused ructions in Merkel's ruling coalition, upsetting some senior Social Democrats.

SPD budget expert Carsten Schneider accused Schaeuble in Germany's Handelsblatt newspaper of trying to undermine the Greek deal reached by Merkel.

Thomas Oppermann, the SPD leader in parliament, said Schaeuble should drop talk of a Greek exit from the euro zone.

"There's no longer a question of a plan B," he said at a meeting of the SPD parliamentary faction, adding that a "plan A" had been formulated with the decision for a third aid package for Greece and reforms.

Only two SPD lawmakers voted 'no' to starting negotiations on another financial rescue for Greece and even the rebellion by conservatives does not look like it has a chance of jeopardising a mandate for the government.

Horst Seehofer, head of Merkel's sister party, the Christian Social Union (CSU), told the Sueddeutsche Zeitung he strongly backed a vote to begin negotiations.

Gerda Hasselfeldt, CSU parliamentary floor leader, said the conditions for further aid for Greece were stricter now and there would be more control mechanisms.

But not everyone was convinced. Detlef Seif, a deputy spokesman for European affairs in parliament for Merkel's Christian Democrats (CDU), told Reuters he would vote against further aid for Greece for the first time.

"I don't see that the stability of the euro zone as a whole is in danger. And the sustainability of Greece's debt isn't given either," he said, adding that the number of lawmakers rebelling against the official party line would probably rise. ($1 = 0.9178 euros) (Additional reporting by Caroline Copley and Michael Nienaber; Writing by Michelle Martin and Caroline Copley; Editing by Peter Graff, Toni Reinhold)