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Sarkozy and Merkel hold bank talks

The leaders of France and Germany are to meet in an attempt to thrash out how to fund an expected 200 billion euro (£172 billion) bailout of Europe's banks.

The problems over sovereign debt exposure in Europe's banks came into sharp focus last week with the collapse of Franco-Belgium lender Dexia.

After its collapse, a new set of bank stress tests are expected to be conducted by the European Banking Authority, a move that analysts say will heap added pressure on stretched balance sheets.

Some of Germany's banks are reportedly already preparing to raise billions in new funds from private sources, an option said to be favoured by German Chancellor Angela Merkel.

French President Nicolas Sarkozy, however, is said to want French banks to have access to the 440 billion euro (£380 billion) in the European Financial Stability Fund, which was originally set up to finance the rescues of Greece, Portugal and Ireland.

Dexia passed the last set of stress tests just three months ago, but this did not take into account its eurozone debt exposure.

A board meeting is being held todaon Sunday y to discuss the break-up of the bank, while French and Belgian government officials are said to be finalising a plan to protect the bank's depositors. Both countries became part-owners following an earlier bailout in 2008.

Irish finance minister Michael Noonan confirmed on Saturday that some German banks were planning to raise cash from investors.

"I know that some of the big German banks I was talking to personally intend raising money on the market," he said, adding that some other banks would also like to access the EU stability fund.

He added that there is "general agreement" that any Europe-wide bank bailout would be significantly in excess of 100 billion euro (£86 billion).

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