Euro facing toughest challenge

Berlin - The euro is in a difficult situation for the first time since its launch, but the 16-nation currency will come through, German Chancellor Angela Merkel said in an interview published on Thursday.

The euro, introduced in 1999, has suffered in recent weeks from worries over the ability of Greece in particular, but also countries such as Spain and Portugal, to rein in their large budget deficits.

"The euro is now, for the first time since its introduction, in a difficult situation, but it will come through," Merkel was quoted as telling the daily Frankfurter Allgemeine Zeitung.

She said the currency proved itself during the financial crisis and the European Union was spared deeper turbulence, but noted that the crisis has led to an increase in public debt.

"Now, to some extent, there is speculation against countries in which this development combined with an unfavorable starting position and unsolved structural problems," Merkel was quoted as saying. "That is dangerous."

Attempts to resolve the issue must address "the sustainability of the budgets of the countries concerned," she added.

"I am of the opinion that true confidence-building in the euro on the financial markets can only succeed if, in Greece and other countries in which there are also very high deficits, the problem is tackled at the root."

The EU has issued a vague promise to support Greece but has made clear that Athens bears primary responsibility for resolving the crisis.

Officials from the EU and International Monetary Fund are inspecting Greek public finances, ahead of a March 16 deadline to show signs of fiscal improvement or face imposed additional austerity measures.

Merkel welcomed the Greek government's readiness to assess the situation with the EU and IMF and take further measures if necessary.

"Credibility on the markets depends on the budget consolidation of 4% of gross domestic product planned for this year actually being achieved," Merkel was quoted as saying.

- AP