Trichet calls for 'quantum leap' in eurozone financial discipline

The president of the European Central Bank is calling for a "quantum leap" in the governance of the eurozone as the euro languishes at its lowest against the dollar since the collapse of Lehman Brothers.

Speculation is growing that the euro may yet fall to parity with the dollar – despite last week's €750bn (£639bn) bailout package. The single currency fell to a 19-month low of $1.23 on Friday night on concerns that austerity measures required to access the rescue fund could tip fragile economies back into recession.

Meanwhile, the Greek Prime Minister, George Papandreou, is threatening to take US investment banks to court over their role in precipitating the Greek debt crisis at the root of the euro's problems.

Markets around the world soared early last week when European governments, central bankers and the International Monetary Fund (IMF) revealed an unprecedented set of loans and guarantees designed to assuage fears that the market chaos in highly indebted Greece could spread to other eurozone economies. The package also included a commitment from the European Central Bank (ECB) to buy up European sovereign bonds.

But the early surge of confidence in the currency markets swiftly wore off and the euro saw a fourth week of falls against the dollar, and a third week of falls against the yen.

Jean-Claude Trichet, the president of the ECB, warned at the weekend that the crisis may be as serious as the Great Depression, and stressed the need for tough action to address ballooning deficits. "There is a need for a quantum leap in the governance of the euro area," Mr Trichet said. "There needs to be major improvements to prevent bad behaviour, to ensure effective implementation of the recommendations made by peers and to ensure real and effective sanctions in case of breaches."

Mr Trichet also emphasised the role of governments, dismissing claims that speculators are to blame for the euro's sustained slide. "It is not an attack on the euro," Mr Trichet said. "It is clear that it is the primary responsibility of the Europeans to take the appropriate measures in order to counter the present severe tensions which have erupted in Europe."

The eurozone bailout includes €440bn-worth of loans and guarantees, a €60bn expansion of the bloc's existing balance of payments facilities and a further £220bn that will be made available by the IMF. The deal was made public after an 11-hour marathon of meetings as European governments battled to stop bondholders' loss of confidence in Greece spreading to other highly indebted economies such as Spain and Portugal. It came just a week after eurozone member states finally agreed a €110bn, three-year rescue package for Greece, which failed to allay investors' fears.

Mr Trichet's robust calls for budget discipline were echoed by Olli Rehn, the Economic and Monetary Affairs Commissioner. Mr Rehn said that the only way to counter issues of moral hazard was to make the conditions attached to triggering the bailout so stiff that only the most desperate would use it.

"This mechanism must be made so unattractive that no leader of any country is voluntarily tempted to resort to this system," he told the European Bank for Reconstruction and Development meeting in Zagreb. "Just ask George Papandreou if he is voluntarily willing to resort to this kind of system in the coming term."

Angela Merkel, the German Chancellor, also said Europe remained in a "very, very serious situation", despite last week's rescue measures, stressing that in future member states will have to "coordinate more closely and pay better attention that we all really obey the rules".

In Greece, Mr Papandreou, who is fighting to push through austerity reforms that will cut public spending by $30bn, refused to rule out legal action against US investment banks for their alleged role in the crisis. A decision on the issue will be made after the conclusion of a parliamentary investigation into the causes of the current crisis, he said.

Separately, the Qatari energy minister, Abdullah bin Hamad al-Attiyah, said that Europe's debt crisis will also put further pressure on oil prices. "The oil price is not reflective of demand and supply, but psychological (factors) and uncertainty, especially in Europe," he said. "All this puts a lot of pressure on the world economy and the oil price."