Medvedev Says He ‘Cannot Rule Out’ Collapse of Euro (Update3)

(Updates with comments quote on BP in seventh paragraph. Click EXT5 for more on the St. Petersburg forum.)

By Lyubov Pronina

June 18 (Bloomberg) -- Russian President Dmitry Medvedev says he can’t rule out the collapse of the euro as the European Union struggles to contain the sovereign debt crisis.

Asked if the emergency could threaten the single currency, Medvedev said, “So far, no. But one cannot rule out this danger because at least a unique situation has emerged,” according to the text of an interview with the Wall Street Journal that was provided by the Russian government.

Russia will help lead the effort to recast the world economic hierarchy after the global financial crisis, Medvedev said today at the St. Petersburg International Economic Forum. The government will use tax incentives and other free-market economic policies to attract investment, he said, as Russia seeks to diversify its economy away from natural resources.

“We really live at a unique time, and we should use it to build a modern, prosperous and strong Russia, a Russia that will be a co-founder of the new world economic order,” Medvedev told an audience that included Citigroup Inc. Chief Executive Officer Vikram Pandit and French Economy Minister Christine Lagarde.

Medvedev, 44, travels to the U.S. next week for talks with U.S. President Barack Obama before heading to Canada for a meeting of the Group of 20 nations. The Wall Street Journal interview touched on issues ranging from the BP Plc oil spill in the Gulf of Mexico to Iran and recent violence in Kyrgyzstan.

BP Concerns

The Russian president suggested the oil spill, which forced London-based BP to set aside $20 billion for potential damages, could lead to the breakup of the company and said he wanted to make sure the interests of Russian shareholders in TNK-BP are safeguarded, according to the interview text. TNK-BP, which accounts for almost a quarter of BP’s output, is half-owned by Russian billionaires, including Viktor Vekselberg.

“How they will be able to digest these losses, whether it will lead to annihilation of the company itself, to its break up, this is a feasibility issue,” Medvedev said of BP. “We would like, speaking frankly, the interests of Russian investors that created a joint business with BP to somehow be ensured.”

Medvedev backed the sanctions against Iran that were passed by the UN Security Council on June 9. The measures, which call for a tighter arms embargo, authority to seize cargo that could be used in nuclear weapons, and restrictions on financial transactions with Iran, represent a balanced approach, he said.

“The sanctions that have been imposed are strict enough, yet at the same time they do not harm the Iranian people,” Medvedev said in the interview. “They may push the Iranian leadership to, at some point, take a decision on closer cooperation with the global community” and the International Atomic Energy Agency.

‘Unilateral Sanctions’

The U.S. and EU have further than the UN resolution, with European leaders approving penalties that target the oil and gas industry, including the prohibition of new investment, technical assistance and technology transfers.

“Unilateral sanctions, be it U.S. sanctions or those of the EU or any other countries, would worsen the situation because they are not agreed upon with anyone,” Medvedev said.

Medvedev also said that the U.S. air base in Kyrgyzstan, a key installation for American operations in Afghanistan, should be closed down once its job is done.

Kyrgyzstan, a former Soviet republic, has been the scene of sporadic violence since April, when President Kurmanbek Bakiyev was ousted and replaced by an interim government. At least 189 people have died in fighting between Kyrgyz and Uzbek groups in the Central Asian nation over the past seven days.

If the base “is needed for fighting terrorism, for bringing order, then OK,” Medvedev said. “But it is obvious, and it is my position and I speak openly about it, that it should not exist forever. It should, in my opinion, resolve concrete tasks and complete its work.”

--With assistance from Lucian Kim in St. Petersburg. Editors: Willy Morris, John Simpson