'We can't just throw Greece out of the euro' - Juncker warns ahead of crunch summit

"A conclusion needs to be found with the three institutions and there needs to be very, very intensive work," the German premier said on Friday morning

Athens' Syriza government has failed to extract any concessions from its international lenders after four months of fruitless talks.

German finance minister Wolfgang Schaeuble has hinted the country should not remain in the euro at all costs, pressuring Mr Tsipras to back down over his Leftist "red lines" on labour and pensions reform.

In contrast to Ms Merkel's comments in Riga, Mr Schaeuble is thought to have touted the possibility of a "parallel currency" for Greece at a recent meeting of European officials, according to reports in Bloomberg.

The German number two is reported to have cited the example of Montenegro, which uses the euro but sits outside the currency union, without explicitly advocating it as a blueprint for Greece. In an interview with Les Echosearlier this week, Mr Schaeuble refused to either support or deny plans for a parallel currency. The German finance ministry later said the report was "inaccurate" and talk of an alternative currency for Greece was "not up for debate".

The introduction of an alternative currency, to help Greece make its domestic obligations in the form of IOU's, could mark the first steps towards a Greek ejection from the single currency.

Any plans for Greece to drop the euro would cause "havoc" in Greece, according to Willem Buiter, chief economist at Citi.

"The notion that Greece exits with or without a shadow currency or a proper currency [is rubbish]. Greece has not, historically, been good at managing an independent currency," Mr Buiter told CNBC.

He also dismissed the notion of a Montenegro-style arrangement for Greece as "rubbish" but insisted a default to international lenders would not be "the end of the world" for the country.

• How the ECB became the real villain in Greece
• AEP: defiant Greeks force Europe to the negotiating table

In a signs of a rift between Brussels and hard-liners in Berlin, European Commission chief Jean-Claude Juncker warned the single currency was "not just about monetary policy and economic reasons, but also the dignity of the Greeks".

"You can not just throw a country out from the monetary union", Mr Juncker told Wirtschaftswoche

Mr Tsipras, who is due to meet the former Luxembourg chief at noon, said he was "optimistic" the country's partners would come to an agreement with his government.

"I am hopeful that we will soon be able to reach a stable, long-term and sustainable solution without the mistakes of the past – and that Greece will return, cohesively, to growth.”

The three leaders are thought to have agreed on the continued involvement of the International Monetary Fund in any new deal for Greece. IMF chief Christine Lagarde however ruled out any partial deal for Greece, saying the Fund would not agree to a "quick and dirty" arrangement that could delay the country's fate until the Autumn.

Mr Tsipras and Ms Merkel are both facing domestic backlashes from their respective parties over the bail-out negotiations.

The Greek premier is facing down the Left Platform of Syriza, who have called for Greece to default on its international lenders and continue making its social security and salary payments to public sector workers.

Outspoken leader of the Left faction, Panagiotis Lafazanis vowed not to sign-up to any deal that would jettison pre-election pledges.

"We will not accept an agreement that puts our program on the fringe," warned the firebrand energy minister.

Ms Merkel meanwhile has seen resistance to Greek aid grow within her Christian Democrat party.

Athens, which has been without international aid since August 2014, faces a series of repayments worth €1.5bn to the IMF in the first two weeks of June.

The government is also battling to convince lenders of its planned reforms to VAT and agreeing to softer budgetary targets for the next two years.

Finance minister Yanis Varoufakis has also insisted the state will prioritise its workers and pensioners over the Fund if no emergency cash is released, raising the spectre of an unprecedental international default.