Merkel believes that Europe will emerge stronger from the crisis.
BERLIN: German Chancellor Angela Merkel said Wednesday it could take Europe years to solve its debt crisis, as growing scepticism about the outcome of last week's EU summit weighed on financial markets.
In a speech to the German Bundestag or lower house of parliament, Merkel defended the move for tighter budget policing in the 27-nation European Union, saying Europe and the eurozone would emerge stronger from the crisis.
It was a process that won't just last weeks, but months and years, the chancellor said.
There could be "setbacks but if we don't let ourselves be discouraged ... Europe won't just overcome the crisis, but will emerge from it strengthened."
European Union leaders from 26 of the 27 member states agreed at a high-stakes Brussels summit last week to back a Franco-German drive for tighter budget policing in a bid to save the eurozone.
After Britain, which does not use the euro, blocked changes to an EU-wide treaty, the other 26 EU states signalled their willingness to join a new fiscal compact imposing tougher budget rules.
Merkel said that with the agreement on a fiscal compact, the contours of a true political union are beginning to emerge in Europe.
Nevertheless, markets remain sceptical whether the moves decided in Brussels will be enough to prevent a break-up of the euro area.
Ratings agency Moody's said the crisis talks had failed to produce decisive policy measures and threatened to review the credit ratings of all EU states within the next three months.
Adding to the negative sentiment were comments by Merkel herself, in which she ruled out an increase in the European Stability Mechanism, the eurozone's future permanent bailout fund.
The lending limit of the EMS, which EU leaders agreed at last week's summit will be up and running a year earlier than planned, should remain at 500 billion euros (RM2.125 trillion), Merkel said.
Her stance underscores a rift among some European leaders over boosting the fund's firepower and how best to tackle the eurozone's fiscal woes.
With experts saying that the amount will not be enough to rescue a country such as Italy, analysts at Moneycorp saw the remark as the latest in a series of psychological blows to confidence in euroland and its sovereign borrowers.
"The German chancellor dropped another brick on the euro's foot," the analysts said in a daily investors' note.
In Australia, deputy central bank chief Ric Battellino warned that markets appeared to be pricing in the possibility of a break-up of the eurozone, with wide divergences in interest rates paid by European banks beginning to resemble pre-euro levels.
"The formation of the euro area brought convergence of interest rates towards the low levels previously enjoyed only by Germany, but pre-euro relativities are now re-asserting themselves," the Reserve Bank of Australia deputy said.
In two separate bond auctions on Wednesday, Germany saw the yield or rate of return on new two-year treasury notes decline amid strong demand for the issue, while yields on Italian five-year bonds rose.
The growing gap in interest rates suggests that markets are pricing in the possibility of a break-up of the euro area or a significant risk of default by some governments, or both, Battellino said.
A change in the composition of the euro area could not be ruled out, he warned.
Greece's inability to balance its books and the lingering fear that it could default on its huge debts have led many analysts to suggest the country could end up falling out of the euro club.
Also weighing on investor sentiment was the announcement by the United States Federal Reserve that it would hold interest rates steady at record lows for some time to come, warning of severe headwinds for the global economy.
Nevertheless, despite such concerns, the Fed did not unveil any fresh stimulus measures to kickstart growth, triggering a new sell-off on the markets, said Ralph Herre, analyst at LBBW.
CMC Markets analyst Michael Hewson agreed.
"Against a backdrop of concerns about ratings downgrades, a lack of large scale European Central Bank intervention and Angela Merkel's reiteration that there would be no increase in the new bailout fund, it was news out of the United States that really helped push things along," Hewson said.
German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann were set to mark the 10th anniversary of the introduction of euro banknotes and coins at a ceremony in Berlin later on Wednesday.