Interviewed on Austrian public TV channel ORF on the possibility of a "Grexident", or a messy exit from the single currency, Schäuble said, "We can't exclude it."
"To the extent that Greece is solely responsible and decides what is to
happen, and we don't know exactly what Greek leaders are doing, we can't exclude it," he said.
"Europe is ready to help Greece, but Greece must let itself be helped," added Schäuble, who has championed tough austerity and reform demands in return for aid to Athens.
Greece reversed course and agreed in February to a four-month extension of its international bailout despite the new anti-austerity Syriza government wanting a completely new arrangement.
However, Athens will not get any of the remaining funds under the bailout until it details its reform plans, and is scrambling to find cash to meet debt payments coming due this month.
Substantive talks between Greece and its bailout partners resumed this week, but tensions between Greek and European leaders have flared.
At a conference Thursday in Vienna, Austrian Finance Minister Hans Jörg Schelling expressed concern that the political inexperience of Greece's new leaders "increased the risk of a possible accident."
Schäuble, who also participated in the conference, said that in his view "Greece is in no way a lost cause".
A German finance ministry spokeswoman stressed that "just to be clear, it is our goal to strengthen the eurozone and to preserve the eurozone in its current form.... We do not want Greece to leave."
She added, at a regular Berlin press briefing, that "it is important to emphasize that it is now Greece's turn to meet its reform obligations as they were agreed".
"It is also important to stress that there will be no blank cheque, and that the idea is quid pro quo."
She added that it was "positive that talks have now begun with the institutions" which have granted Greece the conditional bailout loans.
Chancellor Angela Merkel's spokesman Steffen Seibert also addressed the matter, saying that "we want to be a good friend and partner to Greece, and I believe that what Germany has done during the European crisis of recent years underlines just that".