Eurozone labours to cross new rescue deal hurdles

The EU insists leaders are working feverishly to activate new eurozone rescue tools -- but even as renewed recession lurks, divisions abound within euro currency nations. From mountain to seaside retreats, eurozone leaders and officials are not "strictly" in holiday mode, as spokesman Olivier Bailly said of European Commission president Jose Manuel Barroso, back in his native Portugal. Even as stocks recovered some of the recent heavy losses, Barroso, who warned last week of mounting problems including a demand by Finland for Greece to offer collateral in exchange for loans under a second bailout, was said to be "very active, very much in contact with everyone." Nevertheless, the eurozone bid to sign off quickly a July 21 summit agreement aimed at beefing up the currency's financial defences seems likely to stretch on well into the autumn, probably regardless of market turbulence. At stake are wider powers, and possibly more funds eventually, for the 440-billion-euro ($625-billion) European Financial Stability Facility (EFSF) -- the fund propping up the latest, 160-billion-euro Greek rescue as well as bailouts for Ireland, Portugal and maybe others. Barroso ultimately wants "all elements" including size re-visited, although that has proved too controversial for Germany and other mainly northern states whose voters are tiring of handing over taxpayer monies to under-performing EU neighbours. A change to EU treaties is required to allow the EFSF to step in to help troubled banks and buy back debt on secondary markets, a role currently reserved for the European Central Bank. Despite the summer break, EU leaders targeted September implementation. But as slow growth prompted the US Federal Reserve to vow Tuesday that interest rates would remain near zero for two more years, checks around eurozone governments confirmed what EU economic affairs commissioner Olli Rehn last week said was a "necessary -- and legitimate -- price to pay for living in democracies." In order to secure ratification, Italy is willing to implement a special decree, Belgium's caretaker cabinet will give its assent on August 25, France has called a special parliamentary session for September 6 to 8, and Spain has set a September 26 deadline to beat early elections. But the more reluctant contributors are again dragging heels. A vote upping Slovakia's share of EFSF guarantees, with an extra 3.3 billion euros, is only "due by the end of the year." Finland's parliament will not vote "until October," while the Netherlands has not fixed any date -- although a parliamentary committee starts scrutinising the outline July eurozone deal on Wednesday. Demands among hardliners range from the call for collateral to strict fiscal consolidation or economic reforms such as labour market law and tax regimes, as well as a high private-sector contribution to the Greek bailout. Germany, which feeds the lion's share into each eurozone rescue because of its size, is expected to vote by the end of September -- and while defeat is not anticipated, domestic political tension seems assured. Christoph Schmidt, an economic advisor to the German government, wrote Tuesday in business daily Handelsblatt that German voters would reject "a constantly widening liability union through the back-door." Given the sequencing of these hurdles, Spain's Elena Salgado expects fellow finance ministers to meet "in the first days of September," ahead of the next planned talks in Poland on September 16-17. No-one contacted by AFP at the EU's current Polish presidency, its council of ministers, the European Commission or the Eurogroup presided over by Luxembourg premier Jean-Claude Juncker could immediately confirm set plans. However, Poland's Wroclaw talks begin the day after eagerly-awaited European Commission economic forecasts are released. And if as Washington fears, recession grips more nations, the data will simply underline why countries should have slashed their budgets last year, says a well-placed EU official. "They should have done then -- when growth gave them the margin -- what they need to do even more now," he said. Given the size of the eurozone debt burden, analysts harbour doubts whether the ECB can intervene sufficiently over coming weeks to prevent money markets again becoming agitated before the EFSF is ready to jump into bond buying itself. "It's possible that markets are starting to slowly share a similar view to ours," Deutsche Bank analysts noted Tuesday. "That the Western world financial system built over the last two to three decades might be totally unsustainable."