BERLIN German Chancellor Angela Merkel said on Wednesday that the euro zone's crisis could not be solved with radical quick fixes like jointly issued bonds, and that instead the bloc faced a "long hard" path to slash back debt built up over decades.
In a closely watched speech to the Bundestag lower house of parliament shortly after Germany's top court imposed new limits on Berlin's participation in euro zone bailouts, Merkel said the shared currency "cannot be allowed to fail and will not fail."
But she urged Europe to rethink its rulebook to ensure small countries like Greece could not put the entire 17-nation currency area at risk.
"I'm convinced that this crisis, if a great crisis of the western world is to be avoided, cannot be fought with a 'carry on' attitude. We need a fundamental rethink," Merkel said.
"We must make it very clear to people that the current problem, namely of excessive debt built up over decades, cannot be solved in one blow, with things like euro bonds or debt restructurings that will suddenly make everything okay. No, this will be a long, hard path, but one that is right for the future of Europe."
Merkel was interrupted several times by jeers from leftist opposition parties, who have been emboldened in recent weeks by rising criticism of her handling of the euro zone's two-year-old debt crisis.
Before she spoke, Frank-Walter Steinmeier, parliamentary leader for the Social Democrats (SPD) in parliament and the loser to Merkel in a 2009 election, gave a fiery speech in the glass-domed chamber denouncing her euro zone policies.
He accused Merkel, wearing black following the death of her father last week, of "lack of courage" and "lack of leadership."
Senior German figures, including long-serving former foreign minister Hans-Dietrich Genscher, had said before the speech that it was the most critical of her chancellorship. But Merkel offered few new ideas in the half-hour address.
Polls in recent months have shown support for Merkel's conservatives sinking and the SPD and environmentalist Greens gaining ground. Her Christian Democrats (CDU) suffered sharp losses in a regional election in eastern Germany on Sunday and their coalition partners, the Free Democrats (FDP), were booted out of the state parliament in Mecklenburg-Vorpommern.
Merkel has also come under fire from some members of her own party for going too far in rescuing countries like Greece, Ireland and Portugal.
Horst Seehofer, the head of her Bavarian sister party, told the Bild newspaper on Wednesday morning that a Greek exit from the euro zone could not be ruled out.
Some of Merkel's traditional allies are threatening to oppose new powers for the euro zone's rescue fund in a parliamentary vote later this month, in what is developing into the biggest threat to her leadership since she first took power in 2005.
Earlier on Wednesday, the Constitutional Court in Karlsruhe ruled that Berlin had not violated German law by contributing to the bailouts of stricken euro members, but imposed strict new limits on future aid, saying Merkel's government must seek approval from lawmakers before granting it.
In her speech in parliament, Merkel said the ruling was confirmation of her government's policies.
She also took a dig at the SPD for allowing Greece into the euro zone in 2001, when the country was led by her predecessor Gerhard Schroeder, and vowed to make debt and deficit limits set out in the bloc's Stability and Growth Pact binding.
"It is quite a paradox that virtually all violations of EU rules, whether economic or environmental, lead to verdicts from the European Court of Justice, but that violations of the Stability and Growth Pact cannot be looked at by the court. We need to think about these issues," Merkel said.
"It has become very clear that the problems of one country, even Greece which represents a mere 2 percent of the euro zone economy, can endanger the entire currency. In the Lisbon treaty there is no mechanism to force those who can't or don't want to respect the stability pact to do so. Therefore, if we say to ourselves that we need more Europe, a stronger, better Europe in the future, then changes to the treaty should not be taboo, to ensure the rules are binding."
(Writing by Noah Barkin; Editing by Ruth Pitchford)