Sarkozy, Merkel vow swift action on eurozone debt

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German Chancellor Angela Merkel and French President Nicolas Sarkozy vowed Sunday a response to the eurozone debt crisis within weeks, insisting they were united on plans to shore up Europe's banks.

Without announcing concrete details, Sarkozy promised, after talks with Merkel in Berlin, "lasting, global and quick responses" before the months-end, amid rampant fears of a crippling credit crunch.

Europe must "arrive at the G20 united and with the problems resolved", he said, referring to a November 3 and 4 meet of the world's richest and leading emerging countries in the French Riviera resort of Cannes.

Closely watched by markets, the United States and European partners, the summit comes amid evidence that some European banks are creaking under the strain of the mounting debt crisis which has pushed Greece to the brink of bankruptcy.

The talks, which lasted over an hour and were to be followed by a working dinner, had been expected to focus on how best to recapitalise banks overexposed to risky sovereign debt.

Leaders want to prevent any new, bigger reduction of Greece's debt triggering a banking crisis reminiscent of 2008 which set off a global recession.

Merkel said Sunday that Paris and Berlin agreed on the recapitalisation of banks, adding they were "decided on doing what is necessary to recapitalise (the) banks in order to assure the granting of credit to the economy".

Following reports that France and Germany, Europe's two biggest economies, were at odds over how to proceed on the recapitalisation plans, Sarkozy added that "agreement was complete".

"An economy is not prosperous without stable and reliable banks," he said.

For her part, Merkel vowed the two countries' banks would be treated "according to the same criteria".

Berlin and Paris had reportedly differed over how to go about recapitalising Europe's banks, which the IMF thinks will need between 100 and 200 billion euros ($135 billion and $270 billion) to cover potential losses.

Sarkozy also said that Paris and Berlin would propose "important changes" to European treaties, adding he favoured greater integration of the eurozone.

Merkel said the "goal is to have closer and more binding cooperation of eurozone countries" to avoid overspending.

Turning to the eurozone's 440-billion-euro European Financial Stability Facility, the two leaders also spoke of the need to reinforce the bailout fund for debt-mired countries.

Merkel welcomed the approval of the bolstered fund, agreed in July, by nearly all 17 eurozone member states. Hold-out Slovakia is still struggling with internal coalition politics over their approval.

France and Germany have identified proposals for bolstering the EFSF's powers, Sarkozy said. Press reports say Paris wants the fund to have a banking licence allowing it to rely on the European Central Bank.

US President Barack Obama has warned that the European woes, with their potential to touch off a credit freeze, pose a threat to the global economy and has called on European leaders to act fast to stem it.

Troubled Franco-Belgian bank Dexia has already brought Belgium into the line of fire with a warning by credit ratings agency Moody's, while Fitch has downgraded Italy's and Spain's credit ratings.

France, Belgium and Luxembourg announced Sunday that they had reached a deal to dismantle Dexia, the first victim of the eurozone debt crisis.

© 2011 AFP

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