BERLIN - The leaders of Germany and France, the eurozone's two biggest economies, said Sunday they have reached an agreement about how to strengthen Europe's shaky banking sector amid the region's debt crisis.
"We are determined to do the necessary to ensure the recapitalization of Europe's banks," German Chancellor Angela Merkel said following talks with French President Nicolas Sarkozy in Berlin.
A "comprehensive response" to the eurozone's debt crisis will be finalized by month's end, including a detailed plan on recapitalizing the banks, Sarkozy said at Berlin's chancellery.
"The economy needs secure financing to ensure growth. There is no prospering economy without stable banks," he said. "That is what is at stake."
However, both leaders declined to name a price tag for the new measures or elaborate further, saying the proposal must first be discussed with other European leaders.
Merkel did not provide details about how the recapitalization would work, saying only that all banks across the eurozone would be measured by the same criteria in coordination with, among others, the European Banking Authority and the International Monetary Fund.
Any solution must be "sustainable," Merkel added.
Sarkozy said the French-German accord on the proposal "is total."
Many experts say the capital cushions of many European banks must be strengthened in order to withstand a possible government-bond default by Greece. Some analysts fear that a Greek default could cause a severe credit squeeze that would even threaten banks not exposed directly to Greece's debt because banks could be afraid to lend to each other.
The credit freeze following the collapse of U.S. investment bank Lehman Brothers in 2008 choked off lending to the wider economy.
Germany and France will now submit their proposal to shore up Europe's shaky banking sector to other European Union governments ahead of an Oct. 17-18 summit of the bloc's 27 leaders in Brussels, officials said.
Both leaders expressed confidence that a comprehensive European response to the crisis will be finalized before a summit of the G-20 most developed nations in France Nov. 3-4.
"The global economy needs this summit to become a success, and the European Union will do its part" to ensure a positive outcome, Merkel said.
The IMF has said banks across the continent might need up to 200 billion euros ($267 billion) in new capital. The EU disputes the IMF's estimate but has warned that lending between banks and from banks to businesses is threatening to freeze up.
Merkel said recently that banks must first seek to raise new capital in private markets before turning to their government, insisting that the eurozone's newly strengthened 440 billion euro ($590 billion) bailout fund would then only serve as a backstop if a member state couldn't cope with shoring up its banks' capital.
France, however, was reported to favor turning to the fund's resources right away instead of relying on a national facility to recapitalize its banks, which are among the biggest holders of Greek bonds.
But Sarkozy sought on Sunday to dispel the notion of different approaches regarding the European Financial Stability Facility, saying "there are no disagreements."
German Finance Minister Wolfgang Schaeuble and his French counterpart, Francois Baroin, also took part in the two leaders' discussions.
Merkel and Sarkozy were set to have a working dinner following the news conference they held at the chancellery.
by Juergen Baetz Associated Press Oct. 10, 2011 12:00 AM
Germany, France devise bank plan
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