At times in recent weeks it's felt a bit like a contest: what new low will the euro sink to next? On Friday, the common currency shared by 16 of the European Union members sank to its lowest level in 18 months, briefly trading at $1.2358. As recently as last summer, the euro was pushing $1.50.

The causes of the drastic decline in the euro's value are not difficult to discern. Budget deficit problems across Europe - most notably in Greece - and massive bailout packages designed to prop up ailing economies have caused financial markets to lose faith in the euro, causing some speculation that the existence of the euro itself was being threatened.

European Central Bank (ECB) President Jean-Claude Trichet isn't sugarcoating the issue. In an interview with the German magazine Der Spiegel, he said Europe is in the most difficult situation since World War II, possibly even since World War I.

'Quantum leap' in Europe

Despite the dire straits, however, Trichet sees a way out of the crisis.

"What we need is a quantum leap in mutual surveillance of economic policies in Europe," Trichet told Spiegel. "We need improved mechanisms to prevent and punish misconduct."

Part of the problem in the eurozone comes from countries ignoring the European Stability and Growth Pact, which sets a budget deficit limit of three percent of a country's gross domestic product (GDP).

Most EU countries have exceeded this limit, and Greece is four times over the mark. Trichet called for "effective sanctions for breaches of the Stability and Growth Pact."

Defending the euro

In Germany, Chancellor Angela Merkel echoed some of Trichet's sentiments in an interview with the Sueddeutsche Zeitung newspaper and defended her own decisions to support a financial rescue package for Greece.

"When the stability of the euro is threatened, we can't evade our responsibility," Merkel told the Sueddeutsche Zeitung. "With our guarantee package from the entire eurozone for Greece, we're ensuring that the common currency remains stable."

She added that Europe, as a whole, needed to get its public budgets in order and reduce debts in the years ahead.

Merkel's decision to back aid for Greece was not popular with many Germans, while the opposition in parliament criticized that her initial reluctance to send money to Athens only exacerbated the situation in Greece and made the financial bailout more expensive than it needed to be.

However, Merkel maintained she just wanted to make sure all legal and economic bases had been covered, and reiterated her stance that sending help to Greece was only done in the wider interest of the euro.

"We all know, if the euro fails, more failures will follow," she said, adding that the only way to ensure the stability of the euro in the future was a convergence of financial policies in Europe.

mz/Reuters/apn/dpa
Editor: Andreas Illmer