UPDATE 2-Germany underwhelmed by Greek IMF aid option

* Germany says does not rule out IMF help for Athens

* But finance minister "very reserved" about that option

* Germany still confident Greece can solve problems itself

(Adds fresh German quotes, background)

By Sarah Marsh

BERLIN, March 19 (Reuters) - Germany on Friday softened its resistance to Greece's mounting debt woes being dealt with outside the European family, though it made clear it was at best lukewarm towards the notion of International Monetary Fund aid.

Greece raised the stakes on Thursday in its quest for European Union help to tackle its debt crisis, saying it could not achieve promised deficit cuts if its borrowing costs did not fall and might -- as a last resort -- have to call in the IMF.

The slight shift in Germany's stance came as Chancellor Angela Merkel weighed legal obstacles to German involvement in any euro zone bailout for Greece, and reflected political pressures in Germany ahead of a May state election.

"We remain confident that Greece's consolidation efforts will be successful," government spokesman Ulrich Wilhelm told a regular news conference, adding: "The signals from the capital markets have been encouraging that it's succeeding."

"At this time, in which no decisions have been made and no decisions are in the pipeline, the government has not excluded IMF aid," he said. "Each country can decide on its own whether to request IMF aid."

Germany would have a clear position on IMF aid when decisions need to be made but that was not yet the case as Greece had not asked for help and as Berlin was confident Athens could solve its problems itself, Wilhelm said.

The European Union's monetary affairs chief urged the bloc's leaders earlier on Friday to agree on a standby aid package for Greece next week after Athens said it could seek IMF help if it gets no firm promise of European aid.

Greek Prime Minister George Papandreou said in Athens his country was one step away from being unable to borrow. [nLDE62I18I]

EU heads of state and government are expected to discuss the Greece issue at a summit in Brussels next week.

SCHAEUBLE'S RESERVATIONS

German Finance Minister Wolfgang Schaeuble was lukewarm reserved about the idea of the IMF helping Athens, his spokesman said, reiterating that Greece had not sought financial aid.

"The Finance Minister ... always made clear that he thinks the European Monetary Union wants to show it is able to overcome its own crises," Finance Ministry spokesman Michael Offer said, speaking at the same news conference as Wilhelm.

"In the case of Greece, he (Schaeuble) is very reserved about financial help from the IMF," Offer added.

France also expressed a strong preference for a European solution. A French government source said on Friday in Paris that talk of an IMF loan was premature though the country was not against the fund providing technical assistance. [nLDE62I1GE]

Schaeuble, who has proposed a European Monetary Fund to tie "hard corrective fiscal action" to any emergency aid, said Germany must keep up its record of fiscal rigour by meeting EU budget rules enshrined in the bloc's Stability and Growth Pact.

"If Germany doesn't comply with it (the Stability Pact), it will fail," he told parliament.

Despite the EU's verbal assurances of support for Greece, investors fear it could prove impossible to construct a euro zone financial safety net for the currency area's most heavily indebted member because of German reluctance.

For questions and answers on Merkel's euro zone strategy, click on [ID:nLDE62H10O]

(Reporting by Sarah Marsh and Erik Kirschbaum; writing by Paul Carrel; editing by John Stonestreet)