Eurozone Crisis: Angela Merkel Warns Europe Facing Its Biggest Test Since WWII

Europe could be facing its biggest test since the Second World War, Angela Merkel said on Monday, and suggested even greater regional union was needed to stop the debt crisis spiralling.

Speaking to members of her Christian Democrats (CDU) Party in Leipzig on Monday, the German chancellor said the survival of the euro was crucial to the survival of the European Union.

"Europe is in one of its toughest, perhaps the toughest hour since World War Two," she said.

"If the euro fails then Europe fails, and we want to prevent and we will prevent this, this is what we are working for, because it is such a huge historical project."

She added: "I believe it is important for those who buy government bonds: that we make it clear we want more Europe step-by-step - that is the European Union and the euro area grows together, otherwise people won't believe we can really get a handle on our problems."

“The task of Germany is to complete economic and monetary union, and build political union in Europe, step-by-step.

Merkel's warning came as Italy was forced to pay a record high of 6.29% interest when it borrowed money - the highest rate any eurozone country has had to pay.

While dropping from 7% high it reached during the turmoil in Rome last week, the latest development confirmed that the resignation of Silvio Berlusconi was not a magic bullet to solve the country's economic woes.

Italy's soon-to-be prime minister Mario Monti is currently holding talks on establishing a new technocratic government which will be tasked with pushing through tough austerity measures designed to reassure the markets that Italy can get its debt problem under control.

Meanwhile in Athens, the new Greek prime minister Lucas Papademos is expected to make a speech later on Monday evening outlining his policy platform.

The Greek parliament is due to hold a confidence vote in the new administration mind-week that will give him the go ahead to implement austerity measures and the acceptance of a 130bn-euro bailout.