Merritt won a case in the Court of Arbitration for Sport (CAS) after challenging the International Olympic Committee's (IOC) controversial rule which states that anyone banned for doping for sixth months or more should miss the next Olympics.
"I am unreconstructed on this - I would have a life ban," said Coe.
Merritt, 25, was banned for 21 months in October 2010 after testing positive for the anabolic steroid DHEA in three tests between October 2009 and January 2010.
His lawyer claimed the drug had been contained in an over-the-counter penis enlargement product and that Merritt had therefore consumed it inadvertently.
British Culture Secretary Jeremy Hunt also argued that a strong anti-drugs message needs to be sent.
"There should be no compromise when it comes to drugs in sport. We are working very very hard to make sure that next year is a clean Olympics.
"Drugs have been a curse in sport for far too long and we are moving in the right direction.
"There needs to be no compromise and we need to send out a signal loud and clear that there is no compromise."
Hundreds of athletes with doping bans are now eligible for London after CAS declared the IOC ruling was "invalid and unenforceable".
The US anti-doping agency USADA lists 33 athletes who would have been prevented from taking part by the IOC but can now do so, including Merritt.
British athletes, including cyclist David Millar and sprinter Dwain Chambers, may take hope of potentially being part of Team GB next year after having both served bans for drugs in the past.
Swimmer Mark Foster, a six-times world champion who represented Britain at five Olympics, believes there should be "a lifetime ban from any sport, not just the Olympics" for drugs cheats.
"If you cheat you cannot go to the Olympics - that is a deterrent. I think there should be no tolerance," he said.
"I think that the deterrent for every sportsman is to say that there is a lifetime ban not just from your sport but from the Olympics - that is a deterrent that people will listen to."