Sarkozy and Merkel vow to aid troubled banks

Angela Merkel said she and Nicolas Sarkozy "are determined to do the necessary to ensure the recapitalisation of Europe's banks".

Merkel spoke after talks in Berlin on Sunday that are aimed at forging an agreement ahead of a summit of the European Union's 27 leaders later this month.

Sarkozy said it was "not the moment" to go into the agreement's details but said that the French-German accord "is total."

The talks were the most important during a weekend of meetings across Europe's capitals, but the opinions of the two leaders differ.

Chancellor Merkel insisted that banks should try and raise money themselves as a first priority or, failing that, their respective governments should come to their rescue.

Only then, if all other options are exhausted, should money from the European bailout pot - the EFSF - be allowed.

French diplomats have insisted there is no disagreement, but few believe them.

On Saturday, Sarkozy met Christine Lagarde, the former French finance minister and now managing director of the International Monetary Fund.

Their meeting in Paris lasted just over an hour but no details were revealed.

Meanwhile the governments of France, Belgium and Luxembourg have agreed to dismantle the troubled bank Dexia.

Internationally, it might not be the best-known French bank (when compared with the likes of BNP Paribas and Societe Generale) but its importance in the economic infrastructure of both countries should not be under-estimated.

Merkel realises the German public is not in favour of further bailouts.

Sarkozy's poll ratings are low and, should his government be forced to support any of its banks, it could precipitate a downgrade in France's AAA credit rating.

He has more than half an eye on presidential elections next year.

The financial sector is now looking ahead to see what concrete plans might emerge from the Europe-wide summit of leaders later this month.