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Europe’s problems ‘must be resolved before G20 meeting’ next month

German Chancellor Angela Merkel and French President Nicolas Sarkozy giving a statement yesterday at the Chancellery in Berlin following a key summit on steps to combat debt turbulence in the eurozone. The leaders of Europe’s two biggest economies are expected in particular to try to hammer out details of a plan to recapitalise Europe’s banks amid fears of a crippling credit crunch. Photo: Odd Andersen/ AFP

German Chancellor Angela Merkel and French President Nicolas Sarkozy giving a statement yesterday at the Chancellery in Berlin following a key summit on steps to combat debt turbulence in the eurozone. The leaders of Europe’s two biggest economies are expected in particular to try to hammer out details of a plan to recapitalise Europe’s banks amid fears of a crippling credit crunch. Photo: Odd Andersen/ AFP

French President Nicolas Sarkozy said yesterday that Europe must “have resolved its problems” by the time G20 leaders meet in the French Riviera resort of Cannes at the beginning of November.

He was speaking at a joint press conference with German Chancellor Angela Merkel in Berlin after talks lasting more than an hour on Europe’s debt crisis that has brought Greece to the brink of bankruptcy.

Mr Sarkozy vowed a “global, lasting and quick response” to the crisis before the end of the month, adding this had been the “main result of this Franco-German meeting”.

Paris and Berlin agree on a recapitalisation of banks, Ms Merkel said, adding they were “decided on doing what is necessary to recapitalise (the) banks in order to assure the granting of credit to the economy”.

Mr Sarkozy added that “agreement was complete”, following reports that Europe’s two biggest economies were at odds over how to proceed on shoring up banks overexposed to risky sovereign debt.

“An economy is not prosperous without stable and reliable banks,” he said.

Mr Sarkozy also said that Paris and Berlin would propose “important changes” to European treaties, adding he favoured greater integration of the eurozone.

For her part, Ms Merkel said the “goal is to have closer and more binding cooperation of eurozone countries” to avoid overspending.

Leaders want to prevent any new, bigger reduction of Greece’s debt triggering a banking crisis reminiscent of 2008 which set off a global recession.

In July, leaders agreed a 21 per cent “haircut”, or reduction in the value of the debt banks hold, in exchange for lowering Athens’ debilitating repayments in the next few years.

Berlin and Paris reportedly differed over how to go about recapitalising Europe’s banks, which the IMF thinks will need between €100 and €200 billion ($135 billion and $270 billion) to cover potential losses.

Germany, Europe’s strongest economy and effective eurozone paymaster, wants under-pressure banks to first turn to investors for funds before appealing for national or European cash.

France, fearful of losing its top-notch AAA credit rating, would rather dip into European funds than its own coffers.

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