BRUSSELS (MNI) – Germany’s Chancellor Angela Merkel and France’s
President Nicolas Sarkozy promised Sunday that they were moving toward a
comprehensive solution of the Eurozone crisis but said more work was
needed to conclude the package in time for another leaders’ summit on
Wednesday.

Complaining of the “mindboggling complexity” of the deal, Sarkozy
nevertheless said that France and Germany were “singing from the same
hymn sheet” in moving toward package that will include bank
recapitalization, a sustainable program for Greece and a more powerful
European bailout fund.

Merkel said there was “broad agreement,” but that “the technical
work was not yet complete.”

The French and German leaders confirmed that the options for
leveraging the European Financial Stability Facility had been narrowed
to two, but they declined to provide any detail. Both of them said the
European Central Bank would not be involved in the plan.

Market News International reported earlier Sunday that the two
options still on the table are a bond insurance plan and the creation of
a special-purpose vehicle that would include money from private
investors.

With regard to bank recapitalization, Sarkozy said the Basle III
capital requirements, expected to be phased in over a number of years
elsewhere, will be made effective in 2012 for European banks. This is
expected to result in a 9% Tier 1 capital ratio for most banks.

The two leaders did not comment on how much capital banks will be
required to raise, but they said the institutions would have to raise
the funds themselves or to turn to national authorities for the money.
Merkel said the EFSF would provide the funds only as a last resort.

Regarding additional restructuring measures needed in the Eurozone
economy, both leaders turned pointedly toward Italy, suggesting that
Italian Prime Minister Silvio Berlusconi needed to do more to spur
growth and reduce the country’s enormous debt.

“All our partners must shoulder their responsibilities,” Sarkozy
said.

Merkel said that “Italy is a very strong country but it is also
highly indebted,” adding that “trust cannot be based solely on a
firewall.”

European Council President Herman Van Rompuy said at a separate
briefing that European leaders had “sought reassurance” from Italy that
the economic reform efforts that have been promised would be rapidly
implemented.

The efforts by Eurozone officials to leverage the EFSF have been
driven primarily by the desire to provide a firewall for Italy and Spain
to protect them from contagion in the case of a Greece default.

— Paris newsroom, +331-42-71-55-40; jduffy@marketnews.com

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