93-year-old former company commander allegedly helped kill more than 300 people in Italy during World War Two.
According to Yad Vashem, some 1.5 million Jews served in the various allied armies during the war.
"There's no drawing a line under the history," Merkel said, dismissing a yearning that many post-war generations of Germans harbor.
There are only around one thousand Jews in Ecuador.
The blaze last Saturday was not the first attack on a refugee shelter in Germany but it shocked a nation that has received a surge of refugees in the last few years.