Euro near 4-year dollar low, Germany calls for more debt reduction to restore confidence

Germany pushes for deficit cuts as euro slides

BRUSSELS — Germany is pushing the other countries that use the euro to swiftly cut budget deficits as the only way Europe’s battered currency union can restore confidence and climb out of a debt crisis that threatens to wreck it.

German Finance Minister Wolfgang Schaeuble told reporters Monday at a meeting of finance officials from the 16 eurozone countries that getting their deficits down was “the only task that everyone has to fulfill for himself and for the common good.”

Germany, Europe’s largest economy, is providing the largest chunk of a €110 billion bailout for Greece and a €750 billion ($1 trillion) rescue package for other euro nations. German voters and politicians have bridled at bailing out freespending governments.

Chancellor Angela Merkel has already demanded — and won — promises of harsh cutbacks from near-bankrupt Greece in return. And Germany wants other vulnerable countries, such as Portugal, to slash spending to make sure that they won’t require a bailout funded by other euro members.

The euro traded near four-year lows Monday at $1.2328 amid warnings from European leaders that the loan backstop announced last week to prop up troubled eurozone economies would not be enough to defuse market worries over the regions’s ballooning debt.

The fund, agreed with the International Monetary Fund, initially calmed markets when it was announced last week. But that euphoria has worn off because of doubts that European governments can reduce swelling debt levels — despite promises from Spain and Portugal to step up debt-cutting efforts.

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.

Ireland has the biggest deficit in the eurozone at 14.3 percent of gross domestic product, although it has won more market confidence by making quick cutbacks. Greece follows at 13.6 percent, Spain at 11.2 percent, and Portugal at 9.4 percent. The official EU ceiling is 3 percent.

The EU already has rules against running up deficits and debt, but they have been widely ignored. On paper, the so-called Stability and Growth Pact called for heavy fines for violators but the EU never imposed them.

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 stricter limits on debt and deficits and the ultimate threat of kicking a country out of the euro if it can’t stick to the rules.

Until a few months ago, talk that the euro could one day break up was relegated to academic theory. Now it is a regular topic of discussion — though actually leaving would be extremely difficult and economists say could bring on a financial collapse for the country involved that would be worse than the present crisis.

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 the Monday eurozone talks, said he wasn’t concerned about the new low but was “worried as far as the rapidity of the fall is concerned.”

AP business writers Carlo Piovano in Brussels and Pan Pylas in London contributed to this story.