Eurozone majors move swiftly to cut deficits

France and Italy, the eurozone's second- and third-largest economies, were hurriedly preparing deficit-cutting measures Thursday amid renewed concerns that debt burdens may sink the single currency. Italian lawmakers were set to discuss a constitutional amendment on a balanced budget, while the both the Italian and French grovernments were hurriedly preparing new deficit cutting measures to be adopted within days. A relief rally on the US Federal Reserve saying it would likely keep interest rates at ultra-low levels for the next two years quickly faded on Wednesday and the European and US markets fell sharply. Pressure from the markets and the European Central Bank has seen a redoubling of deficit cutting efforts as the debt crisis that has already hit Greece, Ireland and Portugal threatens to ensnare core eurozone countries. On Wednesday, French President Nicolas Sarkozy cut short his holiday to announce new moves to slash France's deficit and the country was hit by rumours it might be next after the United States to lose its top triple-A credit rating. Sarkozy gave his finance and budget ministers one week to come up with new ideas for keeping France's promises to slash its public deficit, with the measures to be decided upon on August 24. Concerns over an economic slowdown that has caused a major selloffs on global stock markets has also forced countries to increase or quicken cuts in order to meet their deficit reduction targets. Market rumours that France was set to lose its triple-A rating were swifly denied by the government and Fitch promptly confirmed Paris' top rating. Standard and Poor's, which downgraded the United States last week, has also said the outlook for France's triple-A rating is stable. In Italy, Prime Minister Silvio Berlusconi has called parliament back early from summer holidays to vote Thursday on a constitutional amendment that would require a balanced budget. On Wednesday, he met trade unions and business leaders to try to nail down reforms they shunned just a month earlier, and set an emergency cabinet meeting next week to adopt the measures. "We have agreed to call a cabinet meeting by the 18th of this month," Berlusconi was quoted as saying. "We have to act quickly. We have taken on heavy commitments," he said. Italian news reports said the government meeting would adopt the measures by decree to speed up their approval. But reports from participants at the meeting said that trade union leaders were united in rejecting proposals to overhaul the labour market and the pensions system. The ECB this week began massive purchases of Italian and Spanish bonds to lower borrowing rates following a panic sell-off last week, but in return it has called on the government to implement long-delayed structural reforms. The burst of eurozone activity came a day after Trichet warned in a radio interview that Europe was facing "the worst crisis since the Second World War" and said the bank had been "extremely clear" with governments on what actions need to be taken. Economists felt the ECB was now dictating terms to eurozone governments in exchange for controversial aid that only it can provide at short notice. "The ECB is now accelerating the process of conforming to the standards it requires by really dictating here the changes it requires to provide support," Barclays Capital managing director Julian Callow told AFP. Eurozone member Cyprus on Wednesday unveiled tax hike proposals to trim its fiscal gap, but Fitch Ratings downgraded it by two notches and said it will likely need an EU bailout. European bank shares were hammered on Wednesday after Greece's finance minister said some of the bonds included in the debt swap that is part of its latest rescue might stretch further than initially thought.