The eurozone faced an acid test Tuesday of whether it can put its house in order as hold-out Slovakia put in doubt a bailout funding boost promised for Greece and bank re-capitalisation.
Slovakia is the last of the 17 eurozone nations to vote on strengthening the European Financial Stability Facility (EFSF), but with the ruling coalition divided the prime minister upped the ante by tying it to a confidence motion in the government.
Greece got a green light from EU and IMF auditors for bankruptcy-saving loan funds, but the Slovak vote threatens to undo efforts to tame the debt crisis including a second Greek bailout and a mechanism to shore up banks.
Separately, EU Commission head Jose Manuel Barroso revealed he would run out proposals to recapitalise European banks and tighten economic governance on Wednesday.
"Tomorrow in the Commission I will make some proposals on some of those topics for instance in terms of recapitalisation of European banks," Barroso said after talks with Dutch Prime Minister Mark Rutte in The Hague.
Slovak lawmakers opened the parliamentary session in the early afternoon, with approval threatened after Parliament speaker Richard Sulik's rebel Freedom and Solidarity (SaS) party said it would not take part in the vote.
US stocks opened lower on news of the make-or-break ballot, which comes after the 16 other eurozone members approved changes to revamp the 440-billion-euro ($590 billion) European Financial Stability Facility.
The fund 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 deepening sovereign debt crisis which now threatens the euro project, the bloc's banking system and the economy.
All 17 must pass the deal for it to come into effect.
European stock markets too were anxious, trading down after recent strong gains on hopes that Europe was finally getting to grips with the crisis.
An EU source told AFP that failure to get ratification would mean EU leaders having to re-start negotiations.
Until ratification is secure, that would mean a fund supposed to contain 440 billion euros of guarantees, which could then even be leveraged into "trillions" as some claim, would have barely 200 billion euros of firepower.
Most of that has already been committed to Ireland and Portugal.
European Central bank chief Jean-Claude Trichet 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."
A spokesman for the the European Commission said the EU was "very much hoping" Slovakia would find a way to resolve the impasse and declined to speculate "on alternative outcomes."
Bailed-out Greece saw fresh strikes Tuesday against harsh government austerity measures a day after the European Union postponed a key summit and eurozone chief Jean-Claude Juncker admitted a write-down of Athens' 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 helping Greece, the 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.
Eurozone states in July agreed to bolster the EFSF precisely to prevent further contagion.
The revamped EFSF would be able to inject money into shaky banks or intervene instead of the ECB to support weaker eurozone countries facing problems in raising fresh funds on the markets.
The SaS said it wanted Slovakia exempted from providing guarantees worth 7.7 billion euros for the EFSF and an opt-out from the European Stabilisation Mechanism (ESM), a permanent bailout fund designed to replace the EFSF in 2013.
Slovakia sat out the original Greek bailout agreed in May 2010.
Meanwhile Greek public sector workers were up in arms over pay cuts and plans to put at least 30,000 people on temporary leave this year, as ordered by the EU and the International Monetary Fund.
The cuts were adopted to ensure Athens receives a blocked eight-billion-euro loan due under its 2010 bailout, which EU and IMF auditors gave the green light for on Tuesday.