OSKAR Lafontaine tried to put a brave face on things last Saturday as he hosted a meeting of G7 finance ministers at Petersberg Castle in Bonn. As the father of a very young child, the German finance minister abhors working at weekends and stayed away from the launch of the euro on January 1st and the World Economic Forum at Davos because they were held outside normal working hours.

Mr Lafontaine had other reasons to be unhappy on Saturday. His beloved proposal to create target exchange-rate zones for the dollar, the euro and the yen was dismissed out of hand by US Treasury Secretary Robert Rubin before the meeting even began.

And Bundesbank president, Mr Hans Tietmeyer's plan to improve supervision of the financial markets fell far short of the sweeping measures favoured by Mr Lafontaine.

To crown it all, the German finance minister was being blamed for the steep fall in the value of the euro, which has lost 8 per cent of its value against the dollar since its launch two months ago.

"I cannot recognise in the present euro rate a disadvantage for European industry," Mr Lafontaine insisted, adding that he did not regard the euro's present rate as either too high or too low.

Mr Lafontaine puts the fall in the euro's value down to the difference in interest rates between the US and the euro zone and to last week's gloomy economic data from France and Germany.

The president of the European Central Bank (ECB), Mr Wim Duisenberg, has a different explanation. He claims that investors are afraid that the ECB will bow to pressure from politicians such as Mr Lafontaine to cut interest rates.

Germany's conservative opposition chimed in this week, accusing the finance minister of "talking down the euro" with his constant demands for lower interest rates. And a leading economics professor claimed that German attempts to politicise the euro as an instrument for stimulating growth and creating jobs was destabilising the currency.

Mr Lafontaine thrives on such attacks, however, and he used a Bundestag budget debate on Tuesday to pile more pressure on the ECB with a warning that Europe could soon be in the grip of deflation.

"There is a need to act. Monetary policy is not growth-neutral. The interest rate mechanism can be used, in a stable economic environment, to give growth impulses," he said.

The dispute between Mr Lafontaine and Mr Duisenberg has moved beyond ideology to become bitterly personal.

The ECB president winces each time the German finance minister's name is mentioned and makes no attempt to conceal his contempt for Mr Lafontaine's economic theories.

When Mr Duisenberg was asked this week if he had read Don't Worry About Globalisation - Jobs for Everyone, an economic tract by Mr Lafontaine's wife, Christa Mueller, he snapped: "I haven't read it and I don't want to read it."

In fact, the ECB president might have prepared himself for a few nasty surprises if he had read the book before Mr Lafontaine took office. It outlines in the clearest possible terms the economic philosophy that the finance minister is determined to put into practice - within Germany and throughout Europe.

Mr Lafontaine's answer to Europe's economic ills is to boost domestic demand by giving consumers more money to spend. High wages and low personal income-tax rates are part of his recipe, but interest rates play a crucial role too.

Mr Lafontaine blames the Bundesbank's policy of controlling inflation with high interest rates for Germany's current, record level of unemployment. He believes that, instead of focusing exclusively on the fight against inflation, central bankers should use monetary policy to stimulate economic growth.

In the present economic climate in Europe, with negligible inflation and slow growth, that means cutting interest rates.

Mr Duisenberg insists that, under the Maastricht Treaty, the function of the ECB is to preserve the stability of the currency and to make interest rate decisions solely on the basis of price stability.

He accuses Mr Lafontaine of violating the independence of the central bank with his constant pressure and claims that the clamour for interest-rate cuts actually makes it more difficult for the bank to implement them.

Most German experts argue against over-estimating the significance of the euro's fall against the dollar, not least because two months is too short a time to provide a proper basis for assessment. Others argue that a strong euro is the last thing Europe needs in current economic conditions and that a limited fall in its value will help to boost exports.

The German public, traditionally devoted to a strong currency, have yet to register alarm at the slide in the euro's value. But the chancellor, Mr Gerhard Schroder, may already be concerned about the direction his finance minister is taking.

A senior adviser to the chancellor warned this week that failure to implement the Agenda 2000 package of EU reforms could plunge the euro into freefall. He was quite explicit about the dangers posed by a further weakening of the euro - higher inflation, higher interest rates and greater government debt.

"This would be a crisis that would make us all worse off," he said.