Eurozone mulls Greece aid amid new turmoil

Eurozone governments tried on Monday to remove key obstacles to a second Greek debt bailout and sharply increase rescue funding as markets tumbled on news Athens will miss budget deficit targets. Finance ministers from the 17 countries sharing the euro gather from 1500 GMT, having to see if Greece is doing enough to justify further aid so that it can pay upcoming bills. The tranche is part of a first, 110-billion EU-IMF bailout bailout agreed in May 2010 but which has proved inadequate to stabilise the Greek finances, leading to increasing fears Athens could default, even with more aid. Ministers too will examine problems holding up a second 160-billion bailout for Athens agreed in July, with the focus initially on ways to boost the euro's rescue fund -- the EFSF -- to help immunise Europe and the global economy from financial contagion. Arriving in Luxembourg for the two-day talks, the EU's economic commissioner Olli Rehn said they would review "the options to optimising the use of the EFSF in order to get more out of it and make it more effective as a financial firewall."  International auditors were continuing to assess Greek finances and forecasts following continuing protests over austerity cuts, Rehn said. As markets fretted again on fears of a Greek default, British finance minister George Osborne urged the eurozone to strengthen its banks, take clear decisions on Greece "and stick to it. "The eurozone's financial fund needs maximum firepower, the eurozone needs to strengthen its banks and the eurozone needs to end all the speculation (and) decide what they are going to do with Greece and stick to it," he said. The mood darkened after Greece announced Sunday that its public deficit will come in at 8.5 percent of gross domestic product (GDP) this year, higher than the 7.4 percent agreed in June. Battered by recession, the Greek government now forecasts it will be able to squeeze the public deficit down to 6.8 percent of GDP next year, but that is still short of the 6.5 percent target as the economy is expected to shrink 2.5 percent.  Athens is labouring under a crushing 350 billion euros of debt but it remains unclear exactly when the new budget presented in Athens to meet EU-IMF demands would be voted on by lawmakers. "It is important that Greece will also legislate the measures that have been decided by the government," said Rehn. Stock markets slumped in Asia and Europe as the crisis deepened, while the euro hit its lowest point against the dollar since January amid concerns over eurozone policymakers' ability to surmount the debt crisis. Wall Street however opened with more modest losses, having tumbled badly on Friday. The United States and other major economies are increasingly concerned Europe is too divided to solve the Greek crisis or deal with problems in the much bigger Italian economy, notably by adequately re-capitalising banks that would lose heavily in the event of default, especially in France.  Many are clamouring for a major boost in the 440-billion-euro ($590 billion) European Financial Stability Facility (EFSF). One way would be to change the fund's rules, enabling it to morph into a bank and so give it the power to leverage funds from the European Central Bank (ECB) in the event of a crisis. Another possibility is to insure bondholders up to 20 to 25 percent of losses should a nation default. Global pressure is on to resolve the problems before G20 leaders meet in Cannes, France on November 3-4. US Treasury Secretary Timothy Geithner has already urged German Finance Minister Wolfgang Schaeuble to put more of Berlin's financial heft at the eurozone's disposal if things worsen. But Schaeuble said at the weekend that the 211-billion-euro limit set for German exposure will not be increased further. Going into Monday, 14 of the 17 eurozone countries had passed legislation allowing the EFSF to intervene earlier and in different ways to help countries facing cashflow difficulties.  The EU wants to be able to trumpet its success at a G20 finance ministers meeting in Paris on October 14-15 so the remaining three votes are crucial.