Business Secretary Vince Cable has given a bleak assessment of the crisis in the eurozone, warning of a "real risk" the single currency could collapse with devastating results.
The consequences of the disintegration of the eurozone would be "too awful to contemplate", with soaring unemployment and the reappearance of nationalism on the continent.
div> Mr Cable said public opinion in Germany may prevent the radical integration needed to bolster the weaker southern European states.
Speaking at a fringe event at the party's conference in Brighton, the Business Secretary said it was "possible to see two very, very divergent outcomes" for the crisis.
Solving the problem would require eurobonds and a transfer union, matched by tighter fiscal discipline from the bailed-out nations, Mr Cable said.
The authorities in Germany understood the need for these measures but public opinion was "in a different place" and the actions may never happen, the Business Secretary warned, saying: "You can then envisage an opposite scenario in which you get real disintegration".
The "most obvious first step" would be Greece, with Spain and Portugal also likely to come under further pressure.
Mr Cable said: "I don't think there should be any illusions as to if that happened how utterly catastrophic it would be. We are in a crisis the likes of which we have never envisaged, let alone experienced.
"We would have massive unemployment, the collapse of investment and the re-emergence of all the demons of nationalism which we thought we had buried, if that happens.
"It's not for me to decide probabilities, but that is now a real risk in a way that it was not two years ago."