Speaking in an interview before finance ministers and central bankers from the Group of 20 nations meet in Mexico, he said top economies must pursue structural reforms and fiscal consolidation to win back market trust and build sustainable growth.

Schaeuble also said in emailed answers to questions submitted by Reuters that he saw no danger of delay in the introduction of Basel III rules on banking capital that are due to be phased in from January.

Schaeuble does not want the two-day G20 meeting in Mexico City to concentrate exclusively on the euro zone crisis to the detriment of other urgent issues such as the "fiscal cliff" facing the United States and Japan's debt problems.

"The United States and Japan bear as great a responsibility for (ensuring stability) as we Europeans," he said.

"The G20 economies must decisively win back confidence with structural reforms and sustainable financial policies. This is the most important precondition for strengthening global economic conditions," Schaeuble said.

"Without consolidation and reforms we risk further loss of confidence and still less growth. No sustainable growth can be built on a mountain of debt," said the minister, known for his advocacy of fiscal rigor even in times of recession.

In the United States, existing legislation will raise taxes and cut spending to the tune of about $600 billion in 2013 unless lawmakers take action. However, Republicans and Democrats have yet to agree on measures to avoid this "fiscal cliff", which could cause the economy to contract.

The G20, which brings together major wealthy and emerging economies, must measure its progress by the goals it set at its Toronto summit two years ago, he added. There the developed countries committed to halve their budget deficits by 2013 and to stabilize their debt load by 2015.

HOPEFUL ON SPAIN, FIRM ON GREECE

Schaeuble has taken a tough line on Greece and other weaker members of the euro zone during the region's three-year sovereign debt crisis, insisting they swallow austerity medicine even as their economies sink deeper into recession.

But he had warm words for Spain, saying it was on the "right path" and that there were signs - seen for example in falling wage costs and in the current account - that its economic imbalances were improving.

Schaeuble reiterated that Greece, still locked in difficult talks with its international creditors aimed at averting bankruptcy, must implement the tough measures it has promised.

The minister dampened expectations that the euro zone's new bailout fund, the European Stability Mechanism (ESM), might soon be able to recapitalize banks directly, reiterating that a planned new oversight body must first be fully functional.

"It is important that liability and control go hand-in-hand. In other words, quality clearly comes before speed," he said.

Schaeuble said he did not fear delays in implementation of the Basel III rules or the possibility that the United States and Britain - which have both criticized them as too unwieldy to work - might not adopt them.

Basel III is the world's regulatory response to the financial crisis, forcing banks to triple the amount of basic capital they hold in a bid to avoid future taxpayer bailouts.

"Like other international financial market reforms, Basel III and its implementation in the most important global financial centers are subject to an internationally-agreed regime of checking procedures," he said.

The G20's regulatory arm, the Financial Stability Board (FSB), will complete proposals by the time of the group's next summit in September 2013 on regulation of non-bank financial institutions ranging from hedge funds to insurance companies.

"We welcome the broad international consensus on a strict regulation of money market funds which act very similarly to banks," Schaeuble said.

(Writing by Gareth Jones, editing by David Stamp)

• A Permanent Economic Emergency