‘Crisis may take years to solve’

German Chancellor Angela Merkel said yesterday 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.

Europe won’t just overcome the crisis but will emerge from it strengthened

In a speech to the German Bundestag or lower house of parliament, Mrs Merkel defended the move for tighter budget policing in the European Union, saying Europe and the eurozone would emerge stronger from the crisis.

“Getting over the state debt crisis is... a process. This process won’t last weeks, it won’t last months, it will last years,” she 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,” she added.

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.

Mrs Merkel said that with such a fiscal compact: “The vision of a real political union is beginning to take on contours.” Nevertheless, markets remained sceptical whether the moves decided in Brussels will be enough to prevent a break-up of the euro area.

European shares fell and the euro fell below 1.30 dollars for the first time in nearly a year. Ratings agency Moody’s has said the crisis talks failed to produce “decisive policy measures” and threatened to review the credit ratings of all EU states within the next three months.

Standard & Poor’s is expected to decide this week whether or not to downgrade 15 of the 17 eurozone members. Adding to the negative sentiment were comments by Merkel herself, in which she ruled out an increase in the European Stability Mechanism.

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, Mrs Merkel said on Tuesday.