Euro leads stocks in revival as Greek faces debt test

German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to seek an accord on new rules for the single currency area at postponed talks in Berlin, three days before an EU summit.

Inspectors from the IMF and EU were in Athens to review Greece's efforts to pull away from its debt crisis.

"The crisis has gone by and it's clear that we are accountable to each other. We've seen it lately with the Greek crisis and we must play by the rules, and the rules have to be changed," French economy minister Christine Lagarde said.

"But I'm not suggesting that the crisis has gone, has disappeared, vanished," said told BBC radio.

The euro rose 1% to more than $1.22 and European stocks were up 1% to a four-week high amid optimism about the global economic recovery. Eurozone industrial production in April surged year-on-year more than in any month in almost two decades, data showed.

Merkel and Sarkozy will try to reconcile Franco-German differences on the notion of a European "economic government" to coordinate national economic policies within the 16-nation eurozone and the 27-member EU.

France wants regular summits of euro zone leaders, backed by a dedicated secretariat, to harmonise economic, social and tax policies and rebalance the European economic between surplus and deficit countries.

A German government spokesman reiterated that Merkel wants all 27 EU states involved in economic governance to strengthen budget discipline and increase economic competitiveness.

EU finance ministers have drafted stricter rules designed to enforce the bloc's budget deficit limit of 3% of national output by applying earlier and tougher sanctions to countries in breach, and extending greater discipline to public debt.

Greece is under strict supervision as part of the terms of a 110 billion package of rescue loans from the IMF and EU countries using the euro.

The IMF and EU officials, who will be in the country for the week, held meetings at the finance ministry in Athens today.

Greece received the first instalment just in time to pay off maturing government debt last month, and is to receive the second in September.

In return, Prime Minister George Papandreou announced painful austerity measures, slashing pensions and salaries while increasing indirect taxes, seeking to gradually bring the deficit down to 2.6% in 2014. Athens says it has exceeded deficit-cutting targets in the first five months of the year.