Europe presses Slovakia to hold new debt crisis vote

Europe piled pressure on Slovakia on Wednesday for a new vote after its parliament rejected plans for a revamped eurozone debt rescue fund as the EU drew up plans to protect banks from any Greek default. Eurozone officials held out hope that Slovakia's centre-right government, which was toppled by the rejection, would organise a new vote this week on the euro's main defence against the crisis, the European Financial Stability Facility (EFSF). The result, which caused European shares to fall early on Wednesday, defied warnings from the United States and China for Europe to get its house in order quickly for the sake of a weakening global economy. "The world economy is heavily affected by the financial crisis and every EU country must contribute its share to the fight against the debt crisis," German Chancellor Angela Merkel said during a visit in Vietnam. She also said she was confident the expanded bailout fund would be ratified this month. The EU holds a summit October 23 focused on finalising its crisis response. French Foreign Minister Alain Juppe said Slovakia's rejection was "not good news" but was confident the government would organise a second vote. "We ardently hope that this vote will be positive because we must put in place all the measures decided in July (at a eurozone summit), which are fundamental to rescuing Greece and reinforcing the eurozone," Juppe told France Info radio. With the unrelenting crisis now threatening Europe's banking system, European Commission president Jose Manuel Barroso was to unveil later Wednesday a recapitalisation strategy to help lenders weather the storm. The European Union's executive arm is considering a proposal to make banks beef up their coffers by raising their core tier one capital ratios, a European source said. France and Germany have pledged to agree a plan to shore up banks by the end of the month but have not given any details as yet. The European Banking Authority backs in principle the idea that banks should raise their core tier one capital ratios to a much higher-than-expected 9.0 percent, the Financial Times reported. Lenders would be given six to nine months to act or face government recapitalisations, the FT said. European Central Bank chief Jean-Claude Trichet called for "clear decisions" from European leaders Tuesday, saying there was a systemic risk. "The high inter-connectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond," he added. Eurozone leaders agreed in July to boost the EFSF's powers in the hope of stemming the fallout from the eurozone's sovereign debt crisis, which now threatens the entire euro project. But the plan needed national ratification. Slovakia is the only country in the 17-nation eurozone to have rejected the changes to the 440-billion-euro rescue fund that was set up to shore up distressed nations after Greece was bailed out in May 2010.  The 'No' vote brought down the coalition government of Prime Minister Iveta Radicova, who had turned the vote into a confidence motion. But the left-of-centre opposition Smer-SD opposition said it was ready for another vote as early as this week, in return for snap elections. "For Smer-SD, the ratification of the EFSF is a priority. Slovakia has to ratify the EFSF, without the mechanism the situation can get worse," said Smer-SD chairman and former prime minister Robert Fico said. Until all 17 nations pass the deal, the fund has around 240 billion euros of firepower, an EU official said, with billions already committed to Ireland and Portugal while Greece is looking for a second bailout. The new-look EFSF would be able to inject money into shaky banks or intervene instead of the European Central Bank (ECB) to support weaker eurozone countries facing problems in raising fresh funds on the markets. Greece faces the acutest problems in rolling over its mountain of debt as financial markets fret over a potentially disastrous default and contagion spilling over into the rest of the eurozone. The country won a reprieve on Tuesday when the EU and IMF concluded a drawn-out audit of its economic recovery programme, paving the way for an 8.0 billion euro slice from the first, 110-billion-euro bailout, it was granted last year. Greece, whose government is driving through swingeing austerity cuts at the behest of its eurozone, ECB and International Monetary Fund backers, saw fresh public-sector strikes Tuesday. The EU has promised a definitive solution before G20 talks on November 3-4 but the devil remains in the detail and difficulty in getting all on board to back the programme, highlighted by the problems in Slovakia.