Worries over Greek rescue plan send euro tumbling

German chancellor Angela Merkel warned the 45 billion (£38.77 billion) aid package requested by Greek prime minister George Papandreou last week was far from guaranteed.

Merkel — wary of opposition at home to the bailout by the European Union and International Monetary Fund — insisted that Athens firm up plans to cut its debts before the deal is agreed.

She said: "We need further savings measures. Germany will help if the appropriate conditions are met. Germany feels an enormous obligation towards the stability of the euro.

"If Greece is ready to accept tough measures, not just in one year but over several years, then we have a good chance to secure the stability of the euro for us all."

Volker Kauder, chairman of the ruling party in Germany's parliament, ramped up the pressure after efforts by Athens over the weekend to reassure investors that aid would arrive in time to avoid a default.

"We said we would help if the euro's stability is at stake. We're now in that situation," said Kauder. "However, firstly we need to check carefully that Greece is pressing ahead with its deficit cuts. It's not going to be handed on a silver plate.

"We'll have to help, but the conditions for that have not yet been met."

The comments stoked fears that Berlin is reluctant to participate in the bailout.

The euro fell as low as 86.06p — its weakest level against the pound since January — before settling down 0.91p at 86.13p. It also fell 0.64 cents against the US dollar to $1.3319 having dropped to $1.3292 earlier in the day.

The two-year Greek government bond yield climbed to 13.6% from 11% and the spread between Greek 10-year bonds and German bunds — a benchmark of stability — widened to 6.7 percentage points, the highest level since 1998.

It came despite pleas from French president Nicolas Sarkozy and European Commission president José Manuel Barrosa for "rapid action" to help Greece.

They said it was important to "counter speculation against Greece in order to ensure the stability of the eurozone".

David Schnautz, a strategist at Commerzbank, said: "The market wants to see the cash laying on the table, not in a coffer beside the table."

Greece racked up a record budget deficit of 13.6% of gross domestic product last year — more than four times the 3% limit set by Europe.

The Greek government has announced tax hikes and public spending cuts to bring it down to 3% by the end of 2012, sparking violent protests and strikes around the country.