BERLIN – The leaders of Germany and France, the eurozone’s two biggest economies, said Sunday that they have reached an agreement about how to strengthen Europe’s shaky banking sector amid the region’s debt crisis.
“We are determined to do the necessary to ensure the recapitalization of Europe’s banks,” German Chancellor Angela Merkel following talks with French President Nicolas Sarkozy in Berlin.
A “comprehensive response” to the eurozone’s debt crisis will be finalized by month’s end, including a detailed plan on recapitalizing the banks, Sarkozy said at Berlin’s chancellery.
However, both leaders declined to name a price tag for the new measures or elaborate further, saying the proposal must first be discussed with other European leaders.
Analysts have urged the eurozone to identify all the banks in the region that need to replenish their capital reserves, then decide whether to compel them to raise that money on the open markets and to provide government financing to the ones that can’t.
Many experts say the capital cushions of many European banks must be strengthened in order to withstand a possible government bond default by Greece. Some analysts fear that a Greek default could cause a severe credit squeeze that would even threaten banks not exposed directly to Greece’s debt because banks could be afraid to lend to each other.
The credit freeze following the collapse of U.S. investment bank Lehman Bros. in 2008 choked off lending to the wider economy and caused a deep recession.
Merkel did not provide details Sunday about how the recapitalization would work, saying only that all banks across the eurozone would be measured by the same criteria in coordination with, among others, the European Banking Authority and the International Monetary Fund.
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