Peace should not be taken for granted if the euro fails, German chancellor Merkel told MPs Wednesday (26 October) ahead of the eurozone summit where an increase of the bail-out fund firepower may lead to Germany's own state assets being taken as collateral.

In a dark blue jacket reflecting the mood in and about the eurozone, Merkel abandoned her usual cautious rhetoric warned outright of a war.

"Nobody should take for granted another 50 years of peace and prosperity in Europe. They are not for granted. That's why I say: If the euro fails, Europe fails," Merkel said, followed by a long applause from all political groups.

"We have a historical obligation: To protect by all means Europe's unification process begun by our forefathers after centuries of hatred and blood spill. None of us can foresee what the consequences would be if we were to fail."

"It cannot be that sometime in the future they say the political generation responsible for Europe in the second decade of the 21 century has failed in the face of history," the chancellor continued.

She was asking for the parliament's "political" green light on a negotiation mandate for the EU summit, beginning later today in Brussels. The summit is seeking to increase the firepower of the €440 billion-strong European Financial Stability Facility (EFSF) to stop the sovereign debt crisis spreading to countries like Italy and ultimately, France.

The Bundestag approved the measure by a large majority, with 503 members in favour, 89 opposing and four abstaining.

German 'risks'

While stressing that Germany's contribution to the EFSF loan guarantees would continue to be capped at €211 billion, she said she could not exclude there may be "risks" for Germany linked to the EFSF increase of firepower. Her own party colleagues had demanded that she clearly excludes German state assets, such as the central bank's gold reserves, to be put as collateral for the EFSF lending power.

"Nobody can clearly estimate if there will be such risks. What I can say is that we cannot exclude it," she said, insisting that the current situation is pushing European leaders into "uncharted territories".

"Not to take these risks would be irresponsible. There is no better and more sensible alternative. Europe and the world are looking at Germany," the chancellor said.

Looking ahead to the summit, the chancellor repeated her long-standing stance that "there is no silver bullet, no simple solutions. We will still deal with these topics for years from now."

She repeated her insistence that the EU treaty had to be changed, in the medium term, to be more strict on countries breaching the euro deficit rules.

"Where does it say that any treaty change has to take 10 years or that there should be no more changes after the Lisbon Treaty," she asked.

EU leaders last Sunday agreed to have an evaluation presented to them in December by council chief Herman Van Rompuy about the possibility for a "limited" treaty change.

'Permanent supervision' for Greece

On the three euro-countries currently propped by EU-IMF loans, Merkel said Ireland was on "the right path", Portugal showed it could implement the promised reforms, while Greece was still "at the beginning of a long road."

For the first time, as opposition MPs noted later on in the debate, Merkel had words of praise for the ordinary Greek citizens feeling the brunt of the austerity measures demanded by international lenders. "People in Greece have to stomach a lot of sacrifices. They deserve our respect and also a sustainable growth perspective in the eurozone."

According to the latest report of the so-called troika, consisting of experts sent from the European Commission, the European Central Bank and the International Monetary Fund, Greece will need even higher debt restructuring and losses for private lenders compared to what EU leaders had agreed upon on 21 July.

"But debt restructuring alone does not solve the problem. Painful structural reforms have to be made, otherwise even after debt restructuring we're back to where we are today," Merkel warned.

That's why, she said, Greece would have to be "assisted" for quite some time. "It's not enough that the troika comes and goes every three months. It would be desirable to have a permanent supervision in Greece," she said, adding that this issue would be brought up at the summit.

In return for what seems to be an unprecedented sovereignty loss in an old EU member state, Merkel promised German investments and mentioned a meeting of local representatives from Germany and Greece in the coming weeks.

"We want Greece to be back on its feet again as soon as possible and will do everything we can to this end," she concluded.

Her junior coalition party, the Liberal Free Democrats (FDP), had less sympathy for Greece, however. Rainer Bruederle, leader of the FDP group, said that the troika had given Athens a "D" and that "nobody expects Greece to turn into an A student over night," as it was now just like eastern-European transition countries 20 years ago.

Sticking to the teacher-pupil metaphor, Bruederle urged Greeks to "do their homework" and said the country could not be funded endlessly like a "bottomless pit".

The leftist opposition was outraged, with Die Linke leader Gregor Gysi pointing out that austerity has forced 27,000 small and medium enterprises to go bankrupt in Greece and that teachers earn as little as €1,000 a month. "What more do you want from them? Do you want them to starve to death?" he said.