Euro banks flashpoint in crisis

 

Merkel and Nicolas Sarkozy turned their crisis-fighting focus to banks, promising a recapitalization blueprint this month that will overtake a 12- week old rescue plan that has yet to be put into place.

French President Nicolas Sarkozy and German Chancellor Angela Merkel, followed by French Finance Minister Francois Baroin (3rd from R) and German Vice Chancellor and Economy Minister Philipp Roesler (L), arrive to speak to the media following talks at the Chancellery on October 9, 2011 in Berlin, Germany. [CNTV]

"We will recapitalize the banks," the French president said in Berlin yesterday at a joint briefing with the German chancellor without providing details. " We'll do it in complete agreement with our German friends because the economy needs it, to assure growth and financing."

Facing rising pressure to defuse turmoil that's raged for 19 months and growing concern Greece is headed to a default, Merkel said European leaders will do "everything necessary" to ensure that banks have enough capital. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 summit.

Searching for what each called a "durable" solution for Greece's debt load shows they have moved beyond a July 21 plan that Luxembourg's Jean-Claude Juncker called the "final package, of course." Their approach may spike a debt swap now being negotiated that would impose a 21 percent write-off and suggests investors take a bigger share of the losses, reflecting the deterioration of the Greek economy.

"There is a big difficulty with respect to the Greek situation because it is looking as if the July 21 agreement just isn't sufficient and that's been increasingly recognized in Greece and the rest of Europe," Julian Callow, chief European economist at Barclays Capital in London, said today on Bloomberg Television's On the Move with Francine Lacqua.

The euro strengthened to the highest this month, adding as much as 1.5 percent to $1.3583 at 11:45 a.m. in Berlin. Standard & Poor's 500 Index futures rose.