The comments, given in a speech to the Bundestag lower house of parliament, represent the first explicit call from a European leader for such a change, although Merkel's Finance Minister Wolfgang Schaeuble broke a taboo earlier this month and urged similar steps.
"In the future we need an entry in the treaty that would make it possible, as a last resort, to exclude a country from the euro zone if the conditions are not fulfilled again and again over the long term," Merkel said.
She also said the Greek debt crisis had landed the euro with its biggest challenge ever but a quick fix by other members of the currency club was not the right strategy.
"The euro is facing the strongest challenge it has ever had to cope with," she said. "The [solution] can only be one we find with regard to the long-term stability of the euro."
"A quick act of solidarity is definitely not the right answer. Rather, the right answer is to seize the problem at the roots [...] therefore there is no alternative to the Greek savings programme," she added in a speech.
Schaeuble has advocated the creation of a European Monetary Fund (EMF), which could support troubled members of the euro zone, but coupled that proposal with a suggestion that members of the 16-nation currency bloc be allowed to leave.
The idea has won tentative backing from Merkel and other countries, but is seen as a longer-term solution that would require changes to the EU's Lisbon Treaty (EurActiv 16/03/10).
"Wolfgang Schaeuble has not made proposals for Greece," Merkel said. "Wolfgang Schaeuble has made proposals so that the IMF wouldn't need to be called in potential situations for which that might now have to be the way out."
EU reassures Greece of aid, if needed
Meanwhile, the European Commission reassured Greece on Wednesday (18 March) that the bloc was ready to help Athens overcome its financial problems but provided no details of how this would be achieved.
"The European Commission has been actively working with euro area member states on designing a mechanism of coordinated assistance," European Commission President José Manuel Barroso said.
Speaking in Brussels after holding talks with Barroso, Greek Prime Minister George Papandreou said Athens counted on an EU or euro zone aid programme being approved if necessary to help his country, but did not rule out other options such as seeking aid from the International Monetary Fund.
"We have left all options open but we expect the euro zone can deal with this possibility, which might never occur," he told a joint news conference.
He said he might have to seek other solutions if borrowing costs become unbearable for Greece. He also vowed to push full steam ahead with his government's austerity programme, despite the pain it causes the Greek people.
He added that Greece's problems should pave the way for strengthening economic policy coordination in the euro zone.
Juncker backs German-style 'debt brake' law for Europe
Eurogroup Chairman Jean-Claude Juncker said the euro zone will have to consider adopting a rule like Germany's "debt brake" law to ensure countries keep their budget deficits in check, but he did not spell out which sanctions rule-breakers should face.
"I have great sympathy for the German debt brake," said Juncker, who chairs monthly meetings of finance ministers from the euro bloc. "We will also have to consider such a rule or a similar measure in the euro zone."
A new "debt brake" law will force the German government to make substantial reductions in new borrowing from 2011.
Under legislation introduced by Chancellor Merkel's former 'grand coalition' government, federal new borrowing will be capped at 0.35% of gross domestic product from 2016.
(EurActiv with Reuters.)
