BERLIN (AP) — The €750 billion ($1 trillion) shock-and-awe rescue package to prevent the Greek debt crisis from spreading only bought eurozone countries more time, it didn’t solve their underlying debt problems, German Chancellor Angela Merkel and a European Central Bank official said Sunday.
Market turmoil over rising levels of European government debt — sparked by Greece’s immediate crisis — will only calm down if the 16 nations who share the euro currency reform their economies and reduce their deficits, the German leader and ECB chief economist Juergen Stark said in different forums.
“We bought time, not more than that,” Stark was quoted as saying in the Frankfurter Allgemeine Sonntagszeitung paper, adding the euro was not in danger “but in a critical situation.”
Merkel on Sunday defended the loan package as the right step to stabilize the currency, but also acknowledged it was a stopgap measure.
“We didn’t do more than buy time to get the differences in competitiveness and budget deficits of eurozone countries in order,” she told a conference of the Confederation of German Trade Unions in Berlin.
The euro has come under intense market pressure because of fears about Greek debt problems spreading to other heavily indebted eurozone countries. It sank to near a four-year low against the dollar Friday in New York, buying $1.2355.
The speculation against the euro was only possible because of the differing economic strength and debt levels of the eurozone countries, Merkel said. “If you just ignore this problem, you won’t get things to calm down.”
Merkel also told union members that budget cuts in Germany are inevitable, calling the country’s own current debt level unsustainable.
In the past few days, Merkel has repeatedly urged all eurozone countries to trim their budget deficits. She also called for greater cooperation in financial and economic policy across Europe to ensure the currency’s long-term stability.
Defending the latest bailout package — which is highly unpopular among German voters — Merkel told daily Sueddeutsche Zeitung paper that it’s not only euro’s stability that is at stake, but European unity as a whole.
“We know if the euro fails, then more is failing,” the paper quoted her as saying.
The European Union and the International Monetary Fund have also approved a €110 billion ($136 billion) bailout package for Greece but another top German economist expressed doubts Sunday about Greece’s ability to repay its huge debts in an orderly fashion.
Dekabank’s chief economist Ulrich Kater told German news Web site Handelsblatt that he shares the doubts voiced by Deutsche Bank AG’s chief executive Josef Ackermann.
“It will be very, very difficult for Greece to orderly repay its debt,” he was quoted as saying.
He said Greece’s new austerity measures and its lack of competitiveness were dooming its prospects for economic growth, making debt reduction difficult. Greek debt is scheduled to exceed 140 percent of its economic output in 2012.
Ackermann, CEO of Germany’s biggest lender, caused outrage in Greece and nervousness in markets last week by mentioning the possibility of a Greek debt restructuring.
Greek Prime Minister George Papandreou, meanwhile, rejected those views.
“We are paying back the loans we are getting … this saying that ‘we are handing out money to Greece’ is not true,” he said in a CNN interview that aired Sunday. “We have made our mistakes. We are living up to this responsibility.”
Papandreou also said Greece was considering legal action against U.S. investment banks for their role in creating the spiraling debt crisis.
“I wouldn’t rule out” going after the U.S. banks, he told the CNN show “Fareed Zakaria GPS.”
The Greek leader also said a parliamentary investigation will examine the rapid swelling of Greece’s debt and international banking practices to examine whether the financial sector engaged in “fraud and lack of transparency.”
Merkel, however, noted the failure of previous Greek governments.
“What happened in Greece, the falsification of statistics over several years, is completely unacceptable,” she said.
In an interview with German news weekly Der Spiegel to be published Monday, the European Central Bank president said Europe’s economy “is in its most difficult situation since World War II or perhaps even since World War I.”
Jean-Claude Trichet said the euro zone’s debt crisis had provoked a market reaction similar to that at the height of the global financial crisis in 2008.
“The markets didn’t function anymore, it was almost like in the wake of the Lehman (Brothers) bankruptcy in September 2008,” Trichet was quoted as saying.
Trichet also urged European leaders to take further action to address the crisis’ underlying problems, calling for a “quantum leap” in control of financial and economic policy across the 16-nation currency zone.
“We need improved structures, to avoid and sanction wrongdoing,” Trichet was quoted as saying.
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Associated Press Writer Demetris Nellas in Athens contributed to this report.