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Slovakia 'no' vote endangers euro rescue effort

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(BRATISLAVA) - Lawmakers in the eurozone's poorest member Slovakia cast a menacing new shadow over the 17-nation bloc's debt crisis by rejecting an expanded bailout fund and tools to shore up enfeebled banks.

Tuesday's "no" vote in Slovakia, the last of the euro nations to vote on strengthening the European Financial Stability Facility (EFSF), put in doubt a bailout boost promised for Greece and bank re-capitalisation.

It served to bring down the centre-right government of Prime Minister Iveta Radicova, who had turned the vote into a confidence motion. But the opposition said it was ready for a re-vote, in return for snap elections.

The result, which depressed the euro and Asian stock markets in trading Wednesday, defied warnings from the United States and China for Europe to get its house in order quickly for the sake of the weakening global economy.

Heading into the Slovak vote, European Central Bank chief Jean-Claude Trichet had warned that "clear decisions" were needed "to cope with a systemic crisis of which we are at the epicentre".

"The crisis is systemic and must be tackled decisively," he said.

"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."

The 16 other eurozone members have already approved changes to the 440-billion-euro ($590 billion) EFSF, which was set up after Greece was bailed out to save it from default in May 2010.

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 and the bloc's banking system.

All 17 nations must pass the deal for it to come into effect. Until then, the fund has barely 200 billion euros of firepower and most of that has already been committed to Ireland and Portugal.

But Radicova's no-confidence gambit failed in Slovakia with only 55 of 124 lawmakers present voting in favour. Nine were against and 60 abstained, including members of the left-of-centre opposition Smer-SD.

The junior coalition liberal party Freedom and Solidarity deserted Radicova, angry that Slovakia would have to join a bailout fund for richer eurozone members.

The Smer-SD said it still supported the revamped EFSF, but wanted early elections.

"Smer-SD is ready to back the EFSF in exchange for a deal on snap elections," Smer-SD lawmaker Jan Pociatek said, adding the repeat vote could take place this week.

Smer-SD chairman and former prime minister Robert Fico said: "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."

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 mountainous debts as financial markets fret over a potentially disastrous default and contagion spilling over into the rest of the eurozone.

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 strikes came after the European Union on Monday postponed a key summit and eurozone chief Jean-Claude Juncker admitted that a write-down of Greece's debt could cost creditors much more than first thought.

The EU has promised a definitive solution before G20 talks on November 3-4, to cover ailing Greece, its banks and, if the downward spiral continues, Belgium, Spain, Italy and even France.

French banks might need public funds to build up their capital as a "last resort", Foreign Minister Alain Juppe said Tuesday, after a Franco-German pledge to shore up European banks and a cross-border dismantling of troubled lender Dexia.

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