Sarkozy heads to Germany for euro talks

Sarkozy, left, pictured with Christine Lagarde, hosts this year’s G-20 summit in Cannes next month [EPA]

French President Nicolas Sarkozy is due to meet Angela Merkel, the German chancellor, for talks towards agreeing a joint position on the eurozone debt crisis.

Sunday’s meeting in Berlin follows talks in Paris on Saturday between Sarkozy and Christine Lagarde, the head of the International Monetary Fund (IMF).

With the turmoil threatening to spiral into financial meltdown as the value of banks’ sovereign bond holdings slide, Merkel and Sarkozy are likely to discuss both how to manage Greece, prevent contagion and strengthen lenders.

Talks are continuing over a vital aid tranche for Greece, which could run out of cash as soon as mid-November.

Eurozone leaders are due to attend a summit on October 17-18 to discuss the crisis, while Sarkozy is also preparing to host this year’s G-20 summit in Cannes on November 3-4.

EU leaders agreed in July to provide Greece with a second bailout of more than 109bn euros ($147bn) to
help the country service its debt through to 2020.

The meeting also comes amid reports of differences on how to use the eurozone’s financial firepower to counter a sovereign debt crisis that threatens the global economy.

Germany and France, the eurozone’s biggest economies, have so far been split over how to recapitalise Europe’s banks, which Ireland estimated on Saturday may need more than 100bn euros ($135bn) to withstand the sovereign debt crisis, while the IMF has said the banks need 200bn in additional funds.

Co-ordinated recapitalisation

Merkel spoke out in favour of a co-ordinated recapitalisation of Europe’s banking sector on Wednesday, and again on Thursday following her own talks with the IMF chief.

A German source told the Reuters news agency that Paris wanted to be able to tap the eurozone’s 440bn euro rescue fund to recapitalise its own banks, which have the largest exposure to peripheral eurozone debt, while Berlin insisted the fund should be used only as a last resort when no national funds are available.

A French treasury source told Reuters that Paris believed banks unable to raise capital on the open market
should be able to tap the fund, but talk of divergences with Berlin was premature since the issue had not yet been debated.

The French government and the Bank of France had dismissed until this week any need to recapitalise French
banks and are now wrangling over how to do it in a way that does not put the country’s top-notch credit rating at risk.

France and Germany, two eurozone heavyweights, have come under pressure worldwide to resolve Europe’s debt crisis, which has thrown financial markets into turmoil.

US President Barack Obama on Thursday urged Europe to “act fast”, calling the common currency bloc’s crisis the largest obstacle to the US’s own recovery.

World Bank President Robert Zoellick told Wirtschaftswoche magazine there was a “total lack” of vision in Europe and Germany in particular needed to show more leadership.