Germany steps up demands for debt cutting campaign

The euro, stocks and oil endured another rough ride yesterday as German demands that Europe confront its debt crisis with tougher rules rattled markets.

German Finance Minister Wolfgang Schauble said that to reassure investors and halt the euro's slide to a four year low against the dollar, deficit reduction has to be the "number one objective" in Europe.

He will this week demand demand tougher rules for countries that use the euro while France's finance minister said ahead of an EU ministerial meeting in Brussels that debt abusers should face sanctions.

The euro dropped to $1.2235 in Asian trade yesterday - its lowest since April 2006 - compared with $1.2358 in New York on Friday. It later recovered to $1.2341 in Europe.

Tokyo shares fell 2.17 per cent as dealers worried about Japanese exporters and Europe's all fell after opening before making up most of their lost ground.

Oil fell below $70 a barrel at one stage in Asia, before recovering to $71.6. But it has now lost $15 since May 3.

After agreeing a €110 billion bail-out for Greece and a €750 billion fund for other European Union nations that could struggle to repay loans, Europe's leaders did little to alleviate fears that the debt crisis is over.

Worries that a debt default by a country like Greece could hit the world financial system in the same way the collapse of Lehman Brothers did in 2008 have badly hit the euro and shares.

Germany's Finance Minister Schaeuble was to lay out proposals on Friday to bolster the eurozone's Stability and Growth Pact, which lays down deficit and debt limits which that Greece and other countries have breached.

A ministry spokesman said the pact "has not been sufficient to prevent bad budgetary trends, not only in Greece but in other eurozone countries".

The spokesman said the minister would meet EU President Herman Van Rompuy on Friday for talks with other euro countries "to ensure that the eurozone as a whole is strengthened".

Press reports said Germany could demand a European version of its own constitutional "debt brake", which puts a legal limit on public deficits.

German Chancellor Angela Mer-kel also sent a warning on Sunday that European governments have to do more to control debt and spending.

Last week's rescue package had "done nothing more than to buy time until we have brought order to these competitive differences and to the budget deficits of individual euro countries," she told a trades union conference.

The euro's troubles are "only possible because of huge differences in the economic strengths and debt levels of member states," Ms Merkel said.

International Monetary Fund chief Dominique Strauss-Kahn also said on Sunday that European nations had taken too long to respond to the Greek crisis.

France's Finance Minister Christine Lagarde said: "We need to check how best to impose sanctions" on fiscal miscreants. She told the Frankfurter Allgemeine Zeitung that sanctions must be: "daunting" and could include withholding EU money or voting rights.

Luxembourg Prime Minister Jean-Claude Juncker said he was most concerned at the speed of the euro's fall.

"I am not worried as far as the current exchange rate is concerned, I'm worried as far as the rapidity of the fall is concerned," the head of the eurozone finance ministers said at the Brussels meeting.

Analysts also highlighted a return of doubts in recent days.