German Chancellor Angela Merkel said on Tuesday that Europe was doing everything in its power to prevent Greece from defaulting on its debt and cautioned that an exit from the euro zone would unleash domino effects and should be avoided at all costs.

Asked by RBB inforadio whether a Greek default would doom the euro, Merkel answered: We are using all the tools we have to prevent this. We need to avoid all disorderly processes with regards to the euro.

Calling Europe's challenge historic, she added that everything must be done to keep the euro zone intact because we would see domino effects very quickly.

In a currency union with 17 members, we can only have a stable euro if we prevent disorderly processes. Therefore it is our top priority to avoid an uncontrolled default, because it would hit not only Greece. The danger would be very high that it would hit many other countries.

Merkel's comments come a day after Economy Minister Philipp Roesler, who leads the junior coalition party the Free Democrats in her government, said that to stabilize the euro there could no longer be any taboos.

Merkel said in her interview everyone should balance their words carefully to avoid further market volatility. She added that Germany felt absolutely committed to the euro, saying the country had benefited hugely from it.

Merkel said Europe would not be able to avoid changes to the Lisbon Treaty in the medium-term, making clear that the bloc's rule book needed to be changed to ensure countries that violated fiscal rules were punished.

Until now, for example, if countries violate the Stability and Growth Pact they cannot be taken before the European Court of Justice, she said.

Merkel also expressed confidence that the German stability stance within the ECB would not change after the departure of executive board member Juergen Stark, who is to be replaced by deputy finance minister Joerg Asmussen, a Social Democrat (SPD) whose views on monetary policy are largely unknown.

She expressed confidence that her coalition parties would get a majority without having to rely on the opposition in a vote in the Bundetag lower house of parliament on September 29 to give the European Financial Stability Fund (EFSF) more powers.

(Writing by Noah Barkin; Reporting by Maria Sheahan and Annika Breidthardt; Editing by Anna Willard)

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