By Matthew Brown and Ron Harui May 17 (Bloomberg) -- The euro slid to the lowest level in more than four years against the dollar on concern European measures to reduce fiscal deficits will undermine the 16-nation currency region’s recovery. The shared currency fell for a third day versus the yen before euro-area finance ministers meet in Brussels today as European Central Bank President Jean-Claude Trichet called for a “quantum leap” in how member states’ budgets are controlled. The pound fell to a 13-month low after U.K. Prime Minister David Cameron said his government uncovered “very bad” spending decisions by the previous administration and as a report showed London home prices fell for the first time this year. “There’s a loss of confidence in the euro,” said Paul Robinson, a currency strategist at Barclays Capital in London. “Investors are asking if the euro-zone crisis is similar to the 2008 banking crisis.” The euro dropped 0.5 percent to $1.2299 as of 7:38 a.m. in London from $1.2358 in New York on May 14, after earlier touching $1.2235, the lowest level since April 18, 2006. Europe’s currency slid to 113.38 yen from 114.38, after reaching 112.46, the least since May 6. The yen gained 0.4 percent to 92.09 per dollar from 92.47. The euro fell to as low as 1.3991 Swiss francs, the weakest since the euro’s debut in 1999, before trading at 1.4012 from 1.4008. ‘Quantum Leap’ Trichet called for reform of the way euro-region countries determine spending and defended his decision to buy bonds from debt-saddled countries such as Greece and Portugal. “There is a need for a quantum leap in the governance of the euro area,” Trichet said in an interview with Der Spiegel magazine published on the ECB website. “There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by peers and ensure real and effective sanctions in the case of breaches,” he said. The common currency fell 3.1 percent last week against the greenback as speculation grew that the euro zone will break up. Futures traders last week increased bets to a record that the euro will fall following the 750 billion-euro ($927 billion) bailout to contain a sovereign-debt crisis. The number of wagers made by hedge funds and other large speculators betting on a decline in the 16-nation currency rose on May 11, reaching 113,890 contracts more than those anticipating a gain, according to Commodity Futures Trading Commission data. It was the third consecutive week that the amount climbed to a record. ‘Tough Austerity Measures’ “The fact that European leaders have failed to restore confidence in the single currency is worrying,” Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington, wrote in a note to clients today. “Markets are now focusing on the tough austerity measures that will come and the impact that will have on the euro-zone economy.” The pound weakened for a fourth day against the dollar as Britain’s biggest property website said the average house price in the U.K. capital fell 0.4 percent in May from April to 420,203 pounds ($614,504). In the year, prices rose 5.7 percent, Rightmove said in an e-mailed statement. Sterling fell to $1.4335 from $1.4536, after reaching $1.4252, the lowest level since March 31, 2009. The yen gained 2 percent to 131.78 per pound from 134.40. ‘Very Cautious’ BOE “The Bank of England has been taking a very cautious outlook on the economy,” said Yoh Nihei, a Tokyo-based trading group manager at Tokai Tokyo Securities Co. “The trend for the pound is likely to be downward.” The U.K. central bank said last week that downside risks to economic growth “have increased somewhat,” citing the impact of the fiscal crisis in Europe. The pound extended losses before Chancellor of the Exchequer George Osborne announces his promised fiscal watchdog today, as the new coalition government pins the blame for planned tax increases and spending cuts on its Labour Party predecessor. With the Treasury due to publish an emergency budget by July, Cameron yesterday described Osborne’s aim as a “a proper independent audit of government spending.” The chancellor will set out his plans at news conference in London at 9 a.m. “I’m afraid we are discovering by the day very bad spending decisions that were taken by the last Labour government,” Cameron told BBC television’s Andrew Marr Show. “From the large to the small, we’re going to take action to stop the very bad decisions that were taken in the dying days of the last Labour government.” The pound dropped 1 percent to $1.4394 after falling to $1.4252, the lowest since March 2009, and 1.4 percent to 132.5 yen. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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