* EU Commission set to outline within a week how states
should help banks
* Franco-German row makes grand EU plan difficult
* Source says Germany opposes French wish to tap euro zone
fund for banks
By John O'Donnell and Matthias Sobolewski
BRUSSELS/BERLIN, Oct 7 The European Commission
is to outline within a week how states should recapitalise their
banks, but a row between France and Germany over who should foot
the bill threatens the pan-EU boost for lenders that investors
The pending proposal, which an EU source said would be
announced in time for a summit of leaders on Oct. 17, had raised
high hopes of a grand European plan to prop up weak lenders,
driving up stock markets and lifting the euro.
But a German source cautioned on Friday that Berlin and
Paris disagree on who should pay to bolster banks, a dispute
that could derail any attempt by the EU's executive to
coordinate help for banks across the 27-state bloc.
The stakes are high, with European banks expected to need up
to 200 billion euros ($270 billion) to cope with the threat of
"If you mark-to-market and allow complete defaults, then you
get to these 180-200 billion euros," said one euro zone
Germany, which could easily bankroll its weak lenders, wants
countries to stand by their banks. But France, whose banks are
heavily exposed to Greek debt and grappling with an interbank
lending freeze, fears it could lose its high credit rating by
bailing them out.
Rather than a politically embarrassing taxpayer bailout,
France would rather shunt the bill onto a euro zone fund, which
will soon be able to lend money to governments to help banks.
Germany is insisting this should be only a very last resort.
One proposal backed by Paris but opposed by Berlin is for
many countries in the euro zone to ask the EFSF for money which
would then be used to bolster national bank support schemes.
"One idea considered is to have member states of the euro
zone accessing the EFSF together," said a euro zone official.
"The money would still be used nationally, but there would not
be any stigma for specific countries."
But the German source said Berlin was opposed to France's
wish to use the European Financial Stability Facility (EFSF)
bailout scheme to recapitalise its own banks.
"The French have misunderstood the EFSF," he said. "Our
position is that banks should seek money in the markets first,
then come national backstops, and only when there is no money
available would it kick in at the European level."
Another EU official said it would not make sense for France
to tap the EFSF as this would be more expensive than turning to
money markets. "It's not worth the stigma," he said.
A French finance ministry official played down any apparent
differences with Germany, saying they both agreed banks needed
German Chancellor Angela Merkel and French President Nicolas
Sarkozy are due to meet in Berlin on Sunday to discuss the euro
zone crisis, with bank recapitalisation expected to be a central
theme of their talks.
The proposal from the European Commission is expected to
come in the days following the meeting, sources said.
EU Economic and Monetary Affairs Commissioner Olli Rehn said
on Friday he was confident European leaders would be able to
decide this month how to recapitalise banks and fight a debt
crisis he called the biggest challenge in the history of the
"I'm confident that at least all the triple-A countries and
most EU member countries can (recapitalise banks) either via
markets or by their own funds," he said in Helsinki.
But if that action fails, he said, the EFSF can be used.
"The EFSF facility has been reformed so that in principle it
can be used in this, but that is, let's say, an ultimate
solution," he said.
An EU source said earlier that the European Commission
intended to present member with states a plan that would likely
outline how countries could use their own cash and the EFSF to
help struggling banks.
"If it is presented before the European Council (leaders'
summit on Oct. 17), a decision could follow quickly."
France's top banks - BNP Paribas , Societe Generale
and Credit Agricole -- have seen their stock
price roughly halve since the start of the year. Franco-Belgian
bank Dexia faces possible break-up and may need to be
propped up with extra state cash.