International Monetary Fund managing director Christine Lagarde had talks in Paris yesterday with President Nicolas Sarkozy on a crunch weekend for the European debt crisis.
Sufficient capitalisation for banks is essential to resolve the current crisis
She made no comment either as she went into the Elysée palace or as she left an hour later.
The talks preceded a trip to Berlin by Sarkozy today to meet German Chancellor Angela Merkel, as eurozone leaders cobble together a plan to recapitalise banks overexposed to risky sovereign debt.
On Friday the European Commission gave member states 10 days to agree a plan to shore up their lenders, which Lagarde’s IMF thinks will need between €100 and 200 billion to cover potential losses.
French banks in particular are seen as overexposed to Greek, Italian and Spanish debts, and leaders fear a default in a weaker Mediterranean economy could trigger a financial crisis across the continent.
Highlighting the urgency of the task, ratings agency Moody’s downgraded a dozen British banks over concerns government support for lenders could be withdrawn, and the Fitch agency downgraded Italy’s and Spain’s credit ratings.
The debt crisis, which began in Greece, has snared Ireland and Portugal and now put Italy and Spain in the firing line too, threatening to sink the entire euro project as banks find it hard to raise funding.
The French, German and Italian employers’ federations yesterday appealed for greater European integration, calling for a new treaty to get over “the current shortcomings of the eurozone”.
“So that the foundations can be laid for a prosperous and politically strong 21st century Europe, we call on the European Union to start work on a new treaty, which would be a new step towards closer political and economic union,” France’s Medef, Germany’s BDI and Italy’s Confindustria said.
They stressed that sufficient capitalisation for banks was essential to resolve the current crisis and should be treated as such.
World Bank President Robert Zoellick agreed, accusing Merkel’s Germany of lacking vision in an interview with economic weekly WirtschaftsWoche.
Fears of a “credit crunch” have raised the spectre of 2008, when US giant investment bank Lehman Brothers collapsed and could have taken the global financial system with it but for massive government support.
Merkel, whose country is Europe’s strongest economy and effective eurozone paymaster, insisted on Friday that under-pressure banks must first turn to investors for funds before appealing for national or European cash.