"We've done no more than buy time for ourselves to clear up the differences in competitiveness and in budget deficits of individual eurozone countries," she told the German Federation of Trade Unions on Sunday.
"If we simply ignore this problem we won't be able to calm down this situation," Merkel added.
A $1 trillion rescue package agreed a week ago had merely bought time for the euro zone to clear up the differences in competitiveness and indebtedness between member nations. But Europe's leaders could calm the situation only by sorting out the big economic divergence among the 16 countries which use the common currency.
Speculation that hit the euro would have been inconceivable just a short while ago, she said. "This calls for more regulation," she said in her speech. "But unfortunately this speculation was, and is, only possible because there are considerable differences in economic strength and respective indebtedness between the member states of the euro."
The euro tumbled more than 4% against the dollar last week to an 18-month low of around $1.2350.
The European Union had been right to launch its rescue package, said Merkel, who until recently had been reluctant to back bailouts for Greece and other nations.
The plan aims to stop Greece's debt crisis from spreading across the weaker members of the euro zone and even destabilising the global economy.
But Merkel said far more was needed. The German government is reportedly pressing other eurozone countries to adopt a budget law similar to the one Berlin enshrined last year in the German Constitution. The law prohibits the federal government from running a deficit of more than 0.35% of GDP by 2016 and German states will be prohibited from running any deficit after 2020.
Merkel leads Europe's biggest, and probably strongest economy. Germany's budget deficit last year amounted to 3.3% of its gross domestic product compared with 13.6% in Greece, which can no longer borrow on international markets.
Public debt was high in Germany at 73% of GDP, but dwarfed by that of Athens, which is heading towards 150%.
Preventing a weak eurozone economic policy
Writing in the Finnish daily Helsingin Sanomat on Sunday, the EU's commissioner for economic and monetary policy, Olli Rehn, noted that "because eurozone countries' economies are tightly connected by a currency, it is important to prevent a weak economic policy in one country from threatening the success of others".
"Economic policy monitoring has earlier paid attention almost entirely to deficits, and debts have grown excessively large," he added, stressing that in the future the development of state debt must be followed more closely than before and "possible downward spirals" must be cut off in time.
Rehn said EU action had prevented Greece's problems from spreading, but the crisis also revealed a flaw at the heart of the euro zone's economy. "We stopped the spread of a bushfire in Greece from becoming an uncontrollable forest fire," he said.
"The economic and monetary union's problem has been that the monetary pillar has been from the start stronger than the economic one. The crisis has shown that both are needed."
The euro zone has a single monetary policy, with interest rates for the entire bloc decided by the European Central Bank.
Budget policy remains the preserve of the 16 governments and parliaments, although Rehn has proposed forcing countries to submit their budget plans to Brussels before they go for parliamentary debate and approval.
Zapatero pays the austerity price
An opinion poll out on Sunday showed the political price that some European leaders must pay for imposing austerity to get their budget deficits under control.
Spain's conservative opposition has more than doubled its lead over the government since new spending cuts were imposed.
A Demoscopia poll in the newspaper El Pais showed the Popular Party has a 9.1 percentage point advantage over Prime Minister José Luis Rodriguez Zapatero's Socialists, up from 4.2 percentage points a fortnight ago. The poll was taken on 13 May, one day after cuts in civil servants' pay and a pension freeze were announced.
However, another poll showed that an austerity package Greece imposed in return for a 110 billion euro ($140 billion) EU and IMF bailout has had little effect on support for the government.
Merkel also called for more regulation of trade in derivatives - provided this gained international acceptance - and more restrictions on naked short selling.
But she said she could not push through a transaction tax, which German trades unions want, due to international opposition.
(EurActiv with Reuters.)
