By Aoife White Associated Press
BRUSSELS — Germany’s finance minister pushed eurozone nations to battle their currency’s slide by swiftly reducing their budget deficits and setting up an emergency bailout fund.
Wolfgang Schaeuble said at meeting of finance minister from the 16 euro countries that reducing out of control deficits was “the only task that everyone has to fulfill for himself and for the common good.”
The euro traded near four-year lows today amid warnings from European leaders that a euro750 billion ($1 trillion) loan backstop announced last week to prop up troubled governments would not be enough to defuse market the continent’s government debt crisis.
The euro earlier fell to $1.2237 — its lowest since April 2006, undermined by the prospect of continuing fear and turmoil over the heavy government debt loads among its members.
The shared currency has now fallen a staggering 12 percent over the past week despite the “shock and awe” financial backstop they agreed with the International Monetary Fund on May 10.
The euro was trading 0.2 percent lower on the day at $1.2328 as finance ministers gathered in Brussels to try to restore confidence by showing that they will make the harsh cutbacks needed to reduce their debt burdens.
Schaeuble said that eurozone nations must make a reality the euro750 billion ($1 trillion) rescue package they agreed last week, saying it had to become “credible in each member country” so that “what we agreed means something.”
The fund initially calmed markets last week but has more recently failed to reassure them that European governments can reduce swelling debt levels.
Eurozone finance ministers are holding their first talks on suggestions put forward by the EU executive to toughen the fundamental rules that govern their 11-year-old currency. It says countries should oversee each others’ economies — and review budgets together before they are approved by national parliaments — to prevent governments spending their way into trouble and calling for a bailout, as Greece is doing.
German Chancellor Angela Merkel conceded over the weekend that the package was no more than a band-aid solution to the problems afflicting a number of eurozone countries, from Ireland all the way across to Greece.
She wants bigger legal changes, such as a limit on how much debt countries can run up each year and the ultimate threat of kicking a country out of the euro if it can’t stick to the rules.
European Central Bank President Jean-Claude Trichet echoed Merkel when he told German newspaper Der Spiegel that the package “bought time, nothing more” and that there is now a need for “a quantum leap in the governance of the euro area.”
Investors remain skeptical about the ability of Europe’s governments to push through the austerity measures promised in the face of likely political and social unrest. And even if they do, there are fears the cutbacks will kill off growth — and make it even harder to pay government debt.
This skepticism has triggered worries across the financial system, with banks charging each other more to borrow money and gold, a traditional safe haven, back in demand with prices striking a new record high of $1,249.40 an ounce on Friday.
The euro’s slide by itself is not all bad after huge gains against the dollar last year.
It makes eurozone exports cheaper for dollar buyers in the U.S. and Asia and so could help spur the weak economy.
Luxembourg Prime Minister Jean-Claude Juncker, who will lead today’s eurozone talks, said he wasn’t concerned about the new low but was “worried as far as the rapidity of the fall is concerned.”