EU makes progress on €100 billion bank recapitalisation plan

European governments have made strong progress on a €100 billion deal to recapitalise European banks hit by lending to Greece.  The money will be pumped in to bring lenders' core cash reserves up to a newly raised nine percent of holdings.

The news came just as the leaders of France and Germany readied for head-to-head talks on the crisis outside Brussels, despite resistance from Spain, Italy and Portugal.

Having argued strenuously for the primacy of national treasuries and ministries taking such decisions, British Finance Minister George Osborne emerged happy, ahead of back-to-back EU summits tomorrow and Wednesday.

"We have made real progress and we have come to important decisions on strengthening European banks," he said.

"That's just one part of the package and obviously there is more work to do," he underlined, promising that London"will be keeping up the pressure over the next couple of days" to craft a lasting solution to the debt crisis.

Italy, Spain and Portugal were the most vocal opponents to the proposal, given the cost of plugging holes in their banking sector, diplomats said.

The final deal is largely dependent on parallel, but separate talks on a write-down of reportedly at least 50 percent of the Greek debt held by banks: in exchange, Greece would get new rescue loans from the European Union and the International Monetary Fund.

But many Italian and Spanish banks, like the French, have seen their credit rating downgraded in recent weeks as fears rise over their exposure to sovereign debt.

The European Commission, the EU executive, wants banks to raise their core cash reserves to nine percent. But the idea of forced recapitalisation has been poorly received by the banking community.

The European Banking Authority (EBA) had initially estimated that between 80 and 100 billion euros would be needed, although the IMF had estimated at least twice this amount.

Another diplomat said Spain had insisted that no deal was possible on recapitalisation until the "haircut" -- the extent of Greek losses -- had been agreed.