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Rome/Athens - The eurozone looks for some respite on Wednesday, with Italy due to unveil a technocrat-led cabinet and a new Greek coalition expected to win a confidence vote, as Europe battles to prevent its debt woes from dragging down the world economy.
Former EU commissioner Mario Monti is set to inform Italy's president that he has assembled a new government, whose most pressing task will be to get a fractious political class to agree to painful structural reforms designed to rescue its debt-laden finances.
In Athens, new Prime Minister Lucas Papademos expects an easy win in a confidence vote, but rebuilding Greece's shattered finances will be a daunting task with his national unity government already split over new austerity measures.
With financial markets sceptical that unelected technocrats will have the political clout to impose unpopular reforms, the two-year debt crisis risks engulfing the entire currency bloc and hurting global growth.
US Treasury Secretary Timothy Geithner said Europe had a difficult task in boosting the creditworthiness of some of its economies while also boosting growth.
"That's a difficult balance and you can see they're struggling with it but I think they're gradually making progress," he told a conference sponsored by the Wall Street Journal. "This is absolutely within Europe's capacity to solve and it's within their ability."
France has become the latest eurozone member to come under pressure, after a spike in its borrowing costs on jittery bond markets fuelled concerns that the eurozone's second-biggest economy was also being sucked into the spiralling debt crisis.
With a Brussels-based think-tank warning that Paris' economy should be "ringing alarm bells", Finance Minister Francois Baroin sought to calm fears about France's finances.
"We have the necessary room to manoeuvre within the budget to meet our 2012 deficit target even if the economy slows more than expected," he said in an interview in Wednesday's edition of Les Echos. "Even with growth of 0.5% we can cope."
Baroin said the government was not working on a third savings package after announcing a second round of belt-tightening in three months last week to keep its deficit targets within reach, despite slowing growth.
Data on Tuesday showed the economy of the 17-nation eurozone barely grew in the third quarter. European Central Bank (ECB) president Mario Draghi has predicted the currency bloc will be in a mild recession by the end of the year.
Monti cabinet
Against that backdrop, Italian prime minister-designate Monti is to unveil his cabinet lineup after a meeting with President Giorgio Napolitano scheduled for around 10:00 GMT.
His cabinet, expected to feature experts, academics and some politicians, will have the job of speeding up reform of pensions, labour markets and business regulation to put Italy's finances on a sustainable path.
Yields on Italy's 10-year BTP bonds climbed to over 7% on Tuesday, the level at which Greece and Ireland were forced into bailouts. Italy must refinance some €200bn of bonds by the end of April.
In Greece, the first task facing Papademos will be to implement the painful tax hikes and spending cuts needed to secure fresh loans and stave off bankruptcy that could force Greece's eviction from the single currency.
At stake is an €8bn loan tranche Greece needs to meet repayments due next month and a new bailout worth €130bn. Greece will need some €80bn of that second rescue package in early 2012.
The confidence vote is scheduled for 13:00 GMT and Papademos looks certain to win. But the former ECB vice-president already faces a rebellion from conservatives who form a key part of his crisis coalition.
The New Democracy lawmakers are defying a European Commission demand for a written pledge from the three coalition partners on meeting the terms of Greece's bailout.
Weary and angry after two years of austerity, tens of thousands of Greek protesters are expected to join an annual rally on Thursday to mark the November 17 student uprising in 1973 that helped topple the 1967-74 military junta.
Debate over ECB role
The United States is increasingly worried that Europe's debt crisis is mushrooming into a wider systemic problem.
Alan Krueger, chairperson of the White House Council of Economic Advisers, said the European debt crisis was the leading risk to the US recovery.
The survival of the 17-state currency zone in its existing form is at risk, and EU governments have until a summit on December 9 to come up with a bolder and more convincing strategy involving some form of massive, visible financial backing.
Baroin told Les Echos he believed the ECB had an important role to play in calming the eurozone's debt crisis, but acknowledged, as did Geithner, that Germany had reservations.
Many analysts believe the only way to stem the contagion for now is for the ECB to buy large amounts of bonds - effectively the sort of quantitative easing undertaken by the US and British central banks.
This has been anathema in Germany. But on Tuesday Peter Bofinger, a member of the group of economists that advises the German government, said the ECB should indeed become the eurozone's lender of last resort if the bloc's debt woes risked tearing apart the financial system.
"If politics can't do it, then the ECB must do all it can to bring interest rates down to more reasonable levels," Bofinger said at Euro Finance Week.
