Talking to the BBC's Newsnight programme, Berlusconi also railed against former French president Nicolas Sarkozy.
The controversial politician told presenter Jeremy Paxman that the EU's "imbalanced economic policy" posed an existential threat to the eurozone, just days before the European Union goes to the polls to decide the make-up of its parliament.
"We need radical changes otherwise the economic situation will force us and other European countries to abandon the euro and go back to our national currencies," he cautioned.
When asked about allegations that he had used a deeply offensive term insulting Angela Merkel's sex appeal, which appeared in Italian newspapers in 2011, Berlusconi claimed he was the victim of a smear campaign.
"I have never had any problems with Angela Merkel," he said. "In 20 years of politics I have never insulted anyone and this accusation was made up by someone who wanted to turn Angela against me."
But Berlusconi, who was kicked out of parliament following last year's conviction for tax fraud, criticised fellow European heavyweight Nicolas Sarkozy over his efforts to remove veteran Libyan leader Moamer Kadhafi in 2011.
"He (Sarkozy) feared that my friendship with Kadhafi would stop Libya from supplying France with oil and gas," he said during the BBC interview, conducted in Milan.
"So he moved before the other countries to attack Libya and Kadhafi and I think it was a big mistake."
The 77-year-old also repeated comments made last week to a German newspaper, in which he cautioned against the imposition of EU sanctions on those close to Russian leader Vladimir Putin over the Kremlin's role in the Ukraine crises.