Sarkozy heads to Frankfurt, says euro talks stuck on

PARIS Wed Oct 19, 2011 10:55am EDT

PARIS (Reuters) - French President Nicolas Sarkozy was set to fly to Frankfurt on Wednesday to seek a breakthrough in euro zone crisis talks which he told lawmakers were stalled over whether the European Central Bank should support the EFSF rescue fund, sources said.

Officials in France and Germany said Sarkozy was expected later in the day in Frankfurt for talks with German Chancellor Angela Merkel. He is also likely to meet outgoing ECB President Jean-Claude Trichet.

Sarkozy's travel plans could hinge on the possible birth of his first child with first lady Carla Bruni, after he was seen by a Reuters witness on Wednesday afternoon arriving at a clinic where French media said Bruni had gone into labor.

Sarkozy left the clinic shortly afterwards, the witness said.

France and Germany have pledged to come up with a convincing crisis plan in time for a summit of European Union leaders on Sunday that would rein in debt crisis which is threatening the health of the world economy.

Sarkozy earlier told legislators that Paris and Berlin were divided over what the relationship should be between the ECB and the EFSF, which France wants to have a banking license which would allow it to leverage its capital at the ECB.

"In Germany, the coalition is divided on this issue. It is not just (Chancellor) Angela Merkel who we need to convince," Sarkozy told a lunch meeting on Wednesday, according to legislator Charles de Courson.

Sarkozy started the meeting by saying they would have to be punctual because he may travel to Germany later in the day.

While France has argued that the most effective way of leveraging the firepower of the EFSF is to turn it into a bank, both the ECB and the German government have opposed this.

Asked if he would like the ECB to help boost the EFSF, as he arrived for an event to mark the end of Trichet's ECB presidency in Frankfurt, French Finance Minister Francois Baroin said: "You know the French position and we are sticking to it.

"We think that clearly the best solution is that the fund has a banking license with the central bank, but everyone knows about the reticence of the central bank. Everyone also knows about the Germans' reticence. But for us that remains ... the most effective solution," he said.

Sarkozy spoke to Merkel by telephone earlier on Wednesday, diplomatic sources said.

A European source in Brussels said that the proposal to convert the EFSF into a bank had not been abandoned despite German resistance.

(Reporting by Yann Le Guernigou and Emmanuel Jarry in Paris and Eva Kuehen in Frankfurt; Writing by Catherine Bremer; editing by Daniel Flynn/Mike Peacock)

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