Greek PM meets EU leader amid eurozone crisis

Greek Prime Minister George Papandreou held talks with the EU president on Thursday as the eurozone waited for Slovakia to finally back a rescue fund aimed at solving the bloc's debt crisis. The meeting with EU president Herman Van Rompuy in Brussels came as eurozone officials raced to finalise a response to the crisis, with plans to shore up banks threatened by the debt troubles plaguing the single currency area. Europe was given a scare this week when Slovakia's parliament rejected an overhaul of the eurozone's main defence against the crisis, the European Financial Stability Facility (EFSF). But the centre-right government struck a deal with the left-wing opposition to hold a new vote by Friday, in return for early elections in March. Slovakia is the last hold-out of the 17 nations sharing the embattled euro whose green light is needed to beef up the rescue fund. EU leaders had pressed for a new vote in the wake of warnings from the United States and China for Europe to get its house in order quickly for the sake of a weakening global economy. Papandreou did not speak as he arrived for talks with Van Rompuy. He was to meet later with Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of eurozone finance minister. With a major EU summit set for October 23 and a G20 meeting next month, EU officials are working on a raft of ideas to soothe international concerns. One proposal, an EU source said, would see the EFSF's firepower multiplied by up to fivefold, or to 2.5 trillion euros ($3.5 trillion), but without governments providing new guarantees. "We believe that we have to be stronger in our response. It has to be a decisive, comprehensive response," European Commission president Jose Manuel Barroso said as he met visiting Irish Prime Minister Enda Kenny. "We have very similar views on what needs to be done to support Greece inside Europe, to give maximum possible flexibility to the EFSF, to beef up European Union banks' capital positions," Barroso said. Banks holding Greek debt also face the prospect of taking a bigger losses than the 21 percent "haircut" previously agreed in July as part of a new rescue package for Athens. Irish Prime Minister Kenny said his country and others want to ensure the private sector's participation is limited to Greek debt. "The same clarity of the exclusiveness and uniqueness of this in respect of Greece as was referred to in July should be made perfectly clear," said Kenny, whose country was also bailed out along with Greece and Portugal. With the unrelenting crisis now threatening Europe's banking system, Barroso also called for the urgent recapitalisation of banks so they can weather the sovereign debt storm. Banks that fail to do so should be barred from distributing bonuses and dividends, he said. Barroso said banks should first try to tap the private market to beef up their capital, with support from governments if necessary. If such support is unavailable, the revamped EFSF, once it is ratified, could provide loans. Eurozone leaders agreed in July to boost the EFSF's powers enabling it 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. Barroso did not give a figure but a European source said the commission wants banks to raise their core capital to 9.0 percent, above the 7.0 percent level lenders are working to attain under international reforms. 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. Meanwhile, an EU auditor in Athens said Greece -- already facing severe budget cuts in return for a 110-billion-euro lifeline approved last year and awaiting a second bailout -- should lower its minimum wage as part of efforts to get the struggling economy moving again. The move is likely to be deeply unpopular, coming on top of a whole series of austerity measures which have sparked major protests across the country.