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Merkel and Sarkozy meet to thrash out debt crisis measures

The French and German leaders are holding talks today in the hope of finding a common way forward for the troubled Eurozone.

Image: Philippe Wojazer/AP/Press Association Images

THE LEADERS OF Germany and France, the eurozone’s two biggest economies, are meeting to discuss new measures to counter the bloc’s debt crisis and to seek ways to strengthen Europe’s shaky banking sector.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are holding the talks at Berlin’s chancellery today to forge an agreement ahead of a summit of the European Union’s 27 leaders later this month.

A key issue in the talks is likely to be the need for a coordinated plan to bolster Europe’s banks to withstand a possible government bond default by Greece and how to prevent contagion that could threaten other heavily indebted eurozone nations.

Merkel spoke out in favour of a coordinated bank recapitalisation earlier this week following talks with the International Monetary Fund and other European leaders.

The chancellor said that banks must first seek to raise new capital on the market before turning to their government, insisting that the Eurozone’s newly strengthened €440 billion bailout fund would then only serve as a backstop if a member state can’t cope with shoring up its banks’ capital.

France, however, has appeared to favour turning to the fund’s resources right away instead of relying on a national facility to re-capitalise its banks – who are among the biggest holders of Greek bonds.

French Finance Ministry officials on Friday declined to comment on the different approaches.

Merkel and Sarkozy were set to hold a news conference after holding their first hour of talks, with a working dinner scheduled following the press conference.

German Finance Minister Wolfgang Schaeuble and his French counterpart Francois Baroin were also taking part in the discussions.

The chancellor has insisted that the October 17-18 summit of European leaders in Brussels must send a clear signal on the issue in a bid to restore market confidence.

Germany and France, which together represent about half of the 17-nation currency zone’s economic output, regularly hold talks before EU summits to chart out joint positions.

Schaeuble told the Sunday paper Frankfurter Allgemeine Sonntagszeitung that “there is a high risk that the crisis will grow more acute and spread further.”

One of the countermeasures that therefore have to be in place, he was quoted as saying, must be “to make sure that the banks have sufficient capital.”

Read more: Eurozone debt crisis: 9 key diary dates this month>

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Associated Press

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