German Chancellor Angela Merkel's cabinet has approved new powers for the euro zone's bail-out fund, but she faces an uphill battle to convince party sceptics to back efforts to contain the crisis.
Concerned that Germany's parliament has little control over the European Financial Stability Facility, some members of Merkel's centre-right coalition are threatening to oppose boosting its powers when the Bundestag (lower house) votes on September 29.
If enough conservatives rebel and Merkel is forced to rely on opposition parties to pass the legislation, she could face pressure to dissolve parliament and call early elections, although the chances of that seem slim.
Euro zone leaders last month agreed to boost the effective size of the EFSF to €440 billion and give it extra powers, including a potential role in helping to recapitalise banks.
In a sign of how important the current debate in Germany is for investors, news of the cabinet approval pushed the euro up to session highs against the dollar.
Meanwhile, bailed-out Portugal, struggling to get out of a deep recession and restore its debt-strained public finances, will return to growth in 2013 at 1.2%, finance minister Vitor Gaspar said today.
"The economy should begin growing in 2013 thanks to a recovery in domestic demand ... a correction of macro-economic instability and a continued pick-up in exports," Gaspar told a news conference.
Separately, the President of the European Commission, José Manuel Barroso has said that the EU will push for a so-called Tobin tax on financial transaction at the G20 summit in Cannes, France in November.
