Nikolas Giakoumidis/AP

A protester, not seen, throws a coffee at German consul Wolfgang Hoelscher-Obermaier, with the blue shirt, in Thessaloniki Thursday.

ATHENS - Public sector workers stormed a building where Greek and German officials were meeting in the northern city of Thessaloniki Thursday and pelted a German diplomat with water bottles in a protest over austerity measures.

Riot police used teargas and truncheons to break up a crowd of 250 city employees outside the building and formed a shield around German Consul Wolfgang Hoelscher-Obermaier as he entered.

Photographs also showed coffee being thrown over Hoelscher-Obermaier.

Protesters chanted "It's now or never!" and held up mock gravestones and banners proclaiming "Fight until the end!"

They said they were furious at comments by German envoy Hans-Joachim Fuchtel, who told journalists on Wednesday that Greece could do more to reform its bloated local government sector, the head of the workers' union said.

"Experts say that as far as local government is concerned the work carried out by 3,000 Greek employees can be done by 1,000 Germans," Fuchtel said. On Thursday, he said his remarks had been misinterpreted.

Violence breaks out amid austerity protests in Europe

Fuchtel was appointed by German Chancellor Angela Merkel late last year to explore ways to boost grassroots cooperation between the two countries, and has been lampooned as overbearing in Greek media.

His comments struck a nerve in Greece at a time when its lenders, the European Union and International Monetary Fund, have demanded layoffs and steep spending cuts in exchange for a second $165 billion bailout.

More photos: Demonstrations across Europe over austerity measures

At the Thessaloniki city hall, a woman who answered the switchboard phone said: "No one can talk to you now. They have occupied the building."

A spokesman for the German Foreign Ministry said: "No one was hurt and there was no material damage. The meeting continues as planned and that's what's important."

Garbage piles
Municipal employees have held several nationwide protests and strikes in recent weeks against the new wave of budget cuts, triggering severe disruptions in public transport and causing garbage to pile up across the capital.

The head of the POE-OTA union of municipal workers, Themis Balasopoulos, said Fuchtel's comments showed the government planned to push ahead with controversial public sector layoffs, about 2,000 of which are scheduled by the end of the year.

Read more coverage from NBC News about Europe's austerity troubles

Unions and some politicians oppose the layoffs, which are mainly expected to target local government workers.

"We are here to express our deep anger at his absurd comments," Balasopoulos told Reuters from the protest in Thessaloniki.

"We are not a democracy -- we are under German supervision. If we had decent politicians they would have put him on a plane last night and sent him back home," he said.

Many Greeks, worn down by years of austerity, blame Merkel for forcing the painful cuts in exchange for the bailouts.

In Germany, media have long characterized the Mediterranean state's 11 million people as lazy, corrupt and ungrateful.

Tens of thousands of Greeks protested against a visit by Merkel to Athens in October and some burned Nazi flags. 

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Editor's note: This article was corrected following publication to reflect the country Jean-Claude Juncker represents and add the first name of the German finance minister.

After a short, late-summer break, German officials are set to tighten the screws again on Greece, boosting the prospects that Athens would exit the eurozone and cause a painful shock to the global economy.

In the latest round of talks this week in Berlin, Greek Prime Minister Antonis Samaras is expected to lobby for a two-year extension of deeper spending cuts and tax increases when he meets with German Chancellor Angela Merkel, French President Francois Hollande and Luxembourg Prime Minister Jean-Claude Juncker, who heads the eurozone's finance ministers meetings.

German officials, though, made clear over the weekend that time has run out for the Greek government. Ruling out another Greek bailout, German Finance Minister Wolfgang Schaeuble said Sunday that Athens will just have to deal with the economic pain.

“It can’t be helped -- we can’t make yet another new (bailout) program,” Schaeuble told a public meeting in Berlin. “There are limits.”

But multiple rounds of budget cuts have left Greek officials with limited choices of their own. After two years of contraction, Greece’s economy is shrinking by more than 6 percent a year. Previous rounds of budget cuts have sparked massive, sometimes violent, demonstrations and upended the careers of the politicians who enacted them.

The Greek government doesn’t have the money to repay a massive a pile of debt coming due before year-end. Under the latest bailout deal, set up by the European Union and International Monetary Fund, Greek officials have to come up with 11.5 billion euros ($14 billion) of budget cuts over the next two years. Those cuts alone represent more than 5 percent of the country's falling gross domestic product.

To ease the pain of further cuts, Athens wants two more years to cut its budget deficit to below 3 percent of GDP, from 9.3 percent expected this year. But more time means more money. Extending Greece's bailout package by two years would cost another 20-50 billion euros ($24 billion to $60 billion) on top of the 130 billion euros ($157 billion) already paid or committed, according to estimates by some eurozone officials and economists.

But the German public is in no mood to send more of their savings to Athens after Greece has shown little to no progress in reviving its economy and as even Germany's growth has slowed. As Europe's largest economy -- accounting for roughly 30 percent of the eurozone's gross domestic product -- German popular support is critical for any Greek aid package.   

"I have always said that we can help the Greeks, but we cannot responsibly throw money into a bottomless pit," said Schauble, reflecting a widely-felt sentiment among German voters.

Now, after dozens of summits and repeated failed bailout plans, German officials have apparently concluded that the time of reckoning has arrived for eurozone countries that spent too freely and took on too much debt, according to Michael Crofton, CEO of Philadelphia Trust Co.

“They’re going to stand tough on the euro,” he told CNBC. “If you don’t pay the piper, if you don’t do what you’ve said you’re doing to do, if you don’t cut back on your budgets and impose austerity on your economies, then you’re going to be gone.”

Greece’s departure from the common currency, once unthinkable, may be near.

It would almost certainly force Athens to default on a large portion of its euro debt, which now totals roughly 160 percent of its annual economic output. European governments and banks, which own roughly two thirds of that debt, would likely have write off much of it.

With each failed attempt at finding a workable solution, Greece’s hold on eurozone membership has weakened. Lately, European officials have been doing more than just thinking about Greece’s departure from the common currency.

Bracing for the prospect, Europe’s central bank has begun contingency plans for the possible financial shock if Greece is forced out. Under the plan, reported over the weekend by Germany's weekly Spiegel magazine, the ECB would set up what amounts to a debt firewall, buying up bonds of other struggling eurozone countries like Spain and Italy, if interest rates on those bonds rose above set thresholds.

Such a move could discourage speculators from pushing rates to levels that would inflict pain on larger economies, helping to contain the prospect of a debt “contagion” spreading to Europe’s core. Central bankers have also been considering some form of bank deposit insurance to stem panic withdrawals by individuals and small businesses.

“I think we’re quite well prepared for a Greek exit,” said Chris Watling, CEO of Longview Economics. “This is something European leaders have been thinking about for two years. The bottom line is the Greek numbers arent huge. So I think it’s wholly containable at this stage."

Containable, perhaps, but it won't be a totally painless operation for the financial markets and banking systems, according to a top European Central Bank official.

"A withdrawal by Greece would be manageable," Joerg Asmussen told two German newspapers over the weekend. But "a withdrawal would not be as orderly as some imagine. It would be connected with lower growth and higher unemployment, and very expensive. In Greece, in the whole of Europe and in Germany too."