German Chancellor Angela Merkel Sunday denounced speculation against the euro but said the EU could overcome the problem only by tackling the yawning gap between Europe's strongest and weakest economies.

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.

In the past week we have experienced ... how there has been speculation against the euro, our currency, she told the German Federation of Trades Unions, adding that the extent of speculation would have inconceivable only a short while ago.

This calls for more regulation, she said in a 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 four percent 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 destabilizing the global economy.

But Merkel said far more was needed. We've done no more than buy time for ourselves to clear up the differences in competitiveness and in budget deficits of individual euro zone countries, she said. If we simply ignore this problem we won't be able to calm down this situation.

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.

(writing by David Stamp; Editing by David Cowell)

Germany