Merkel, Sarkozy promise new crisis package, offer no details

BERLIN (Reuters): The leaders of Germany and France promised on Sunday to unveil a new comprehensive package for solving the euro zone’s debt crisis by the end of the month, but offered no details and papered over differences on how to shore up European banks.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said after talks in Berlin their goal was to comwe up with a sustainable answer for Greece’s woes, agree how to recapitalise banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit in Cannes on Nov. 3-4.

“We are very conscious that France and Germany have a particular responsibility for stabilising the euro,” Sarkozy told a joint news conference.

“We need to deliver a response that is sustainable and comprehensive. We have decided to provide this response by the end of the month because Europe must solve its problems by the G20 summit in Cannes.”

Sarkozy will host the Cannes summit and is keen to deliver a big success that might bolster his flagging chances of winning re-election in a presidential vote next year.

But even if the two leaders can agree on a way forward, the experience of the past two years has shown that they could struggle to get the other 15 countries in the euro zone on board in a timely fashion.

Pressed by reporters, both leaders refused repeatedly to discuss details of their plan. Sarkozy said he and Merkel were in “total agreement” on the recapitalisation of European banks, even though officials in Paris and Berlin have made clear in recent days that the countries are far apart.

The two euro zone heavyweights have come under pressure worldwide to resolve a crisis which is roiling markets.

U.S. President Barack Obama on Thursday urged Europe to “act fast”, calling the common currency bloc’s crisis the largest obstacle to a recovery in the United States.

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



Following the news conference, the leaders of the euro zone’s two biggest economies were due to hold a working dinner at the Chancellery.



BANK IMPLOSION



The implosion of Belgian lender Dexia, the first bank to fall victim to the two-year-old euro zone debt crisis, has added a sense of urgency to the talks.



The prime ministers of France and Belgium and the finance minister of Luxembourg agreed a rescue plan for Dexia on Sunday ahead of the meeting in Berlin.



Other French banks have come under intense pressure because of their exposure to Greece and other weak countries on Europe’s southern periphery.



BNP Paribas and Societe Generale denied a report on Sunday that they could seek to raise a combined 11 billion euros as part of a broader European recapitalisation plan.



Ireland estimated at the weekend that European banks may need more than 100 billion euros ($135 billion) to withstand the debt crisis. The International Monetary Fund (IMF) has said they need double that figure.



Paris wants to tap the euro zone’s 440-billion-euro European Financial Stability Facility (EFSF) to shore up its banks, worried that pouring its own money into them could compromise its coveted triple-A credit rating.



Officials in Berlin have made clear that they believe the fund should be used only as a last resort, when euro zone member states don’t have the means to support their banks on their own.



Another area of contention is how to use a new, enhanced EFSF to buy sovereign debt -- an issue that would become particularly crucial if Greece failed to secure its next tranche of aid.



Greece is expected to run out of cash as soon as mid-November. Inspectors from the European Commission , the IMF and the European Central Bank -- the so-called “troika” -- are currently assessing whether Athens has fulfilled the criteria for more aid.



“We are working closely with the troika which is currently in Greece and we expect them to present a sustainable solution for Greece that keeps it in the euro zone and also ensures the financial stability of the euro zone,” Merkel said.



European Commission head Jose Manuel Barroso told German newspaper Bild at the weekend that a Greek default would have unforeseeable consequences and may cause the crisis to spread.



“This is new territory for us and we are discussing solutions which have not really been tested before,” he said.



Merkel said France and Germany were working on steps to boost economic coordination in the euro zone and said their proposals would necessitate changes to the bloc’s Lisbon Treaty.



Sarkozy made clear, however, that Europe needed to “take decisions now”, rather than announce new long-term plans that would take time to implement. Changing the treaty could take several years.



“Comprehensive, sustainable and rapid responses before the end of the month. That is the result of this Franco-German meeting,” he said.