The 750 billion euro (nearly USD 1 trillion) bailout package for heavily indebted euro zone nations announced last Sunday by the European Union and the International Monetary Fund (IMF) is only a "temporary solution" to the debt crisis and the underlying problem of huge budget deficits in the euro area must be tackled urgently to achieve long-term stability, Merkel said in a newspaper interview published on Saturday.
Germany urged its euro zone partners to deal with the problem at its roots by taking measures to bring their state finances in order and to strengthen their competitiveness, she said.
"What is at stake is not just the stability of the euro," the chancellor said.
The common currency must be strengthened because the whole idea of European integration will be at risk if the monetary union becomes shaky.
"If the euro fails, a lot more also will fail," she said.
Her comments came as the euro dropped to an 18-month low of 1.24 against the dollar on Friday and global shares fell sharply over fears that the austerity measures planned by the euro zone's heavily-indebted nations may slow down the global economic recovery. Financial markets also became wary about the ability of euro zone nations to implement difficult fiscal reforms to move towards long-term stability.
Chancellor Merkel called for a closer coordination of the budget and economic policies of the EU member nations.
On its part, the German government will soon announce details of its plans to consolidate its budget, she said.
Chancellor Merkel prepared the nation for spending cuts on Friday by disclosing that the government plans to save more than ten billion euros annually between 2011 and 2015.
For decades, Germany has been living beyond its means, she said while addressing the annual convention of the German Protestant Church in Munich.
Meanwhile, news magazine Der Spiegel reported that the German government is working on an initiative for a Europe-wide coordinated economic consolidation programme for the euro zone. It will be launched shortly to regain consumer confidence in the embattled common currency.
German Finance Minister Wolfgang Schaeuble will present the plan to his colleagues from the other euro zone nations at a meeting of the EU finance ministers in Brussels on Friday, the magazine said.
