France Plans to Utilize Bailout Fund in Recapitalizing Own Banks
Germany and France at odds over issue of reinforcing unstable Euro banks and fighting debt crisis
One week before the Brussels Summit of European Union (EU) leaders for the Polish presidency from Oct. 17 to 18, the German and French governments remain divided on the matter of supporting unsteady banks in the continent and solving the debt problem that could lead to a Greek default.
The high-level meeting of the 27- member EU would possibly be dominated by the Eurozone crisis.
The World News Forecast predicted that the challenges during this summit include the difficult negotiations over the block's long-term budget that will be decided during the Polish presidency. Poland's new assertiveness in the bloc could prove inconvenient when the debate turns to the budget, subsidies and environmental issues.
Both German Chancellor Angela Merkel and French President Nicolas Sarkozy, who are under intense pressure form the U.S. and financial markets, will try to resolve differences on how to use the vast resources of the Eurozone to defy a sovereign debt crisis that threatens global economic recovery, according to Reuters.
Merkel stated that Germany's stance was that "the European Financial Stability Facility was an additional support to be used only if that country is unable to manage on its own, after meeting with Dutch premier Mark Rutte."
Merkel said struggling banks should set look first to the markets, then their national government, and only in the last instance the EFSF, and with reforms as a strict condition.
There was no comment from the French government, where the government and the Bank of France, which regulates French lenders, have set aside any need for recapitalization.
A diplomat from Brussels said France's approach was prescribed by its resolve to limit any risk to its AAA credit rating.
France has the highest debt-to-GDP ratio of any of the six AAA nations in the euro zone at 86.2 percent.
Various principal European banks maintain they need no more capital although the International Monetary Fund says up to 200 billion euro must be infused as a precautionary measure.