Greece should receive a vital lifeline next month in order to avoid bankruptcy, its international lenders said on Tuesday, buying time in a debt crisis that Europe's top central banker labeled "systemic."
After a weeks-long review of the country's finances, inspectors from the European Union, IMF and European Central Bank said an 8 billion euro ($10.87 billion) loan tranche should be paid in early November after approval by eurozone finance ministers and the International Monetary Fund.
But they warned Greece had made only patchy progress in meeting the terms of a bailout agreed in May last year.
"It is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly," the troika said in a statement.
It said additional measures were likely to be needed to meet debt targets in 2013 and 2014 and a privatization drive and structural reforms were falling short. Decisive implementation of existing plans should allow next year's debt goals to be met, it said.
The money will only buy Greece and its eurozone partners a small window of time.
Germany and France, the leading powers in the 17-nation eurozone, have promised to propose a comprehensive strategy to fight the debt crisis at an EU summit delayed until October 23.
After Athens admitted it would not meet its deficit target this year, there is a growing acceptance that a second Greek bailout agreed in July may not be sufficient and a rush is now on to beef up the currency bloc's rescue fund and bolster its banks.
Europe's top financial watchdog warned that the eurozone's sovereign debt crisis had become systemic and threatened global economic stability unless decisive action was taken urgently.
European Central Bank President Jean-Claude Trichet issued the dramatic warning as chairman of the European Systemic Risk Board, created to avoid a repeat of the 2008 financial crisis, amid growing fears that Greece will default on its massive debt.
"The crisis is systemic and must be tackled decisively," Trichet told a European Parliament committee in his final appearance before retiring at the end of the month.
"The high interconnectedness 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."
European banking regulators meanwhile asked banks across the continent to provide updated data on their capital position and sovereign debt exposures to help reassess their need for recapitalization.
Industry sources said the EU banking regulator has demanded lenders achieve a core capital ratio of at least seven percent in a new round of internal stress tests and banks that fail to reach that mark would be asked to bolster their capital.
For a comprehensive deal to come together, the bloc's leaders must resolve differences over how to recapitalize banks, whether to force a Greek debt restructuring or stick to a voluntary deal with private bondholders and how to use the eurozone's rescue fund.
The fate of that fund rests with Slovakia's parliament, the only one in the eurozone yet to ratify more sweeping powers.
Slovak Prime Minister Iveta Radicova raised the stakes in a battle to win approval for new powers for the European Financial Stability Facility by tying the decision to a vote of confidence in her center-right government.
The small, liberal SaS party, the only member of the five-party ruling coalition which opposes the EFSF, said it would abstain, forcing the government to turn to opposition parties to push through a deal.
Even if they lose the vote, Radicova and two of her ruling coalition partners have vowed to push through ratification with opposition support. But that may come at the price of a cabinet reshuffle or early elections.
Europe's inability to draw a line under the crisis has caused growing international alarm, with Japan weighing in on Tuesday after the United States and Britain pressed EU leaders to take decisive action.
Tokyo said it would consult with Washington before it considers buying more eurozone bonds. Finance Minister Jun Azumi urged Europe to restore market confidence in the run-up to a Group of 20 finance leaders' meeting in Paris this week.
Azumi repeated that Japan stood ready to buy more bonds if Europe comes up with a solid scheme to solve a crisis that has resulted in financial rescues for Greece, Ireland and Portugal.
Interbank lending rates in Europe continued to rise amid growing concern over European banks' ability to operate, despite the prospect of massive ECB liquidity support.
Some European banks voiced concern at the prospect of being forced by governments to raise additional capital some say they do not need, possibly taking public money.
Germany's banking association said Europe should look at recapitalization on a case-by-case basis rather than taking a blanket approach apparently envisaged by Berlin and Paris.
The director of the BDB association, Michael Kemmer, also told ARD television that politicians should stick to a July agreement on voluntary private bondholder involvement in a rescue plan for Greece.
That deal envisaged a 21 percent writedown on Greek debt for banks and insurers that participate in a bond swap to reduce and stretch out Greece's debt burden.
However, German Finance Minister Wolfgang Schaeuble and the chairman of euro group finance ministers, Jean-Claude Juncker, have said that figure may no longer be sufficient and the talks may have to be reopened.
Speaking on Austrian television late on Monday, Juncker refused to rule out a mandatory debt restructuring for Greece, which many market analysts and economists say is bound to happen in the coming months.
Many analysts see the rush to recapitalize European banks as a prelude to an enforced write-down of 50 percent or more on their Greek debt holdings.
© 2014 Thomson/Reuters. All rights reserved.