Euro, shares and oil caught in debt storm worries

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The euro, stocks and oil slumped or were give a rough ride Monday as fears that Europe's debt crisis is still out of control rattled global markets and governments.

Germany said it would this week demand tougher rules for countries that use the euro -- which hit a four year low against the dollar -- while France's finance minister said ahead of an EU meeting that debt abusers should face sanctions.

After agreeing a 110 billion euro bailout for Greece and a 750 billion euro 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.

The euro hit 1.2235 dollars in Asian trade Monday -- its lowest since April 2006 -- compared with 1.2358 dollars in New York Friday. It later recovered to 1.2299 dollars in Europe.

Tokyo fell 2.17 percent as dealers worried about Japanese exporters and Europe's all fell after opening before making up lost ground.

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

Germany's Finance Minister Wolfgang Schaeuble was to lay out proposals on Friday to bolster the eurozone's Stability and Growth Pact, which currently lays down deficit and debt limits which many 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.

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.

The pace of the fall of the euro has unnerved some governments. "It is the speed of the depreciation ... the rapidity of this fall which is serious," acknowledged Jean-Pierre Jouyet, head of the French Markets Authority watchdog and a former government minister.

Analysts also highlighted a return of doubts in recent days.

The euro "was previously one of the safe-haven currencies but given the source of many of the concerns is the euro area, with worries still evident about both the potential need for a bail-out at some point in the future and the state of the European banking system, the euro has become more closely linked with risk," said Paul Robinson at Barclays Capital in London.

"The primary concern centres around the view that last week's (EU) announcements are nothing more than a temporary fix and that debt restructuring will have to be part of any lasting solution," said Dermot O'Leary a Dublin-based economist with Goodbody Stockbrokers.

Hideaki Inoue at Mitsubishi UFJ Trust and Banking Corp. commented: "The entire economic outlook is becoming increasingly grim."

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

German Chancellor Angela Merkel 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.

Recent speculation against the euro "is only possible because of huge differences in the economic strengths and debt levels of member states," Merkel said.

© 2010 AFP

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