Franco-German push
October 9, 2011
German Chancellor Angela Merkel and French President Nicolas Sarkozy vowed on Sunday to do everything necessary to stabilize Europe's ailing banking sector, promising to work out a comprehensive package of measures by the end of October to combat the effects of the eurozone debt crisis.
French banks in particular are heavily exposed to Greek debt, which has fanned fears that debt restructuring in Athens could ignite a chain reaction in Europe's banking sector, similar to the one that triggered the 2008 financial crisis in the United States and a subsequent global recession.
In order to prevent such a scenario, Merkel and Sarkozy agreed to push for the recapitalization of banks according to standardized, pan-European criteria. The plan is to be presented during the next meeting of the world's 20 largest industrial economies, the G20, in the southern French city of Cannes at the beginning of November.
Merkel told journalists in Berlin that she and Sarkozy "are determined to do what's necessary to ensure the recapitalization of Europe's banks."
Franco-German solidarity
Earlier in the week, Merkel expressed support for a coordinated bank recapitalization, but insisted that banks first had to try to raise capital on the market before turning to their respective national governments and that only then would the eurozone's temporary bailout fund, the European Financial Stability Facility (EFSF), act as a backstop.
France, however, appeared to favor using EFSF funds immediately to shore up ailing banks, raising speculation of disagreement between Berlin and Paris.
Yet Sarkozy said that French-German agreement is "total" although it was "not the moment" to go into details about the measures discussed.
Both Merkel and Sarkozy said that Greece must remain in the eurozone and also expressed confidence that Slovakia would approve the currency union's expanded bailout fund on Tuesday despite disagreement among the political elite in Bratislava. The bailout fund can become operational only after approval by Slovakia and Malta, the last two of the eurozone's 17 member states to vote on the EFSF.
Author: Spencer Kimball (AP, Reuters, AFP)
Editor: Nicole Goebel