Sarkozy, Merkel to discuss euro zone on Tuesday

PARIS Thu Aug 11, 2011 4:10pm BST

France's President Nicolas Sarkozy speaks during a news conference at the European Council building at the end of an euro zone leaders crisis summit in Brussels July 21, 2011. REUTERS/Philippe Wojazer

France's President Nicolas Sarkozy speaks during a news conference at the European Council building at the end of an euro zone leaders crisis summit in Brussels July 21, 2011.

Credit: Reuters/Philippe Wojazer

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PARIS Aug 11 (Reuters) - French President Nicolas Sarkozy and German Chancellor Angela Merkel will discuss next Tuesday how to make the euro zone work more effectively amid persistent doubts in financial markets over Europe's ability to solve its sovereign debt crisis.

French bank shares have been hardest hit in a general market rout of global stocks this week as investors appear to have lost confidence in the ability of governments on both sides of the Atlantic to overcome their debt mountains.

Sarkozy's office said the two leaders would meet in Paris at 1400 GMT (3:00 p.m. British time) and hold a news conference and a working dinner.

The French leader announced after a July 21 emergency summit of euro zone leaders that Paris and Berlin would put forward joint proposals in August on improving euro zone governance.

That summit, which agreed in principle on a second bailout for Greece and measures to half contagion to larger economies, failed to calm market jitters, forcing the European Central Bank to decide on Sunday to buy Italian and Spanish bonds.

Sarkozy held emergency talks with top ministers on Wednesday after France was hard hit by market turbulence that has wiped some $4 trillion (2.46 trillion pounds) off the value of global stocks in August.

Rumours about the safety of France's AAA credit rating, an expanded bailout for Greece that would hurt French banks and talk that Societe Generale (SOGN.PA) could be in trouble pulled shares of France's second-largest bank down on Wednesday in the heaviest volume since the 2008 financial crisis.

The rumours were all denied and Societe Generale's share price recovered slightly a further slide on Thursday.

French journalist Arnaud Leparmentier of Le Monde newspaper wrote in a blog that beyond a meeting with Merkel, Sarkozy told ministers he also hoped to see Chinese leaders in Beijing later in August.

With markets losing faith in the solidity of the euro zone, there have been calls for the bloc's EFSF bailout fund to be increased from its capacity of 440 billion euros, although Berlin and Paris are both reluctant to support such a move.

The executive European Commission is due to put forward ideas for a possible common euro zone bond in October, although the principle of joint debt issuance or guarantees remains anathema in Germany, which opposes any "transfer union" in which wealthier euro zone countries would support weaker ones.

Other ideas mentioned by EU diplomats include holding regular summits of euro zone leaders to coordinate economic and fiscal policy, with European Council President Herman Van Rompuy playing a role as coordinator and single voice of the euro.

Merkel faces strong domestic opposition to more euro zone bailouts, although she is expected to win parliamentary backing next month for the July 21 agreement to widen the scope of the EFSF to buy sovereign bonds in the secondary market and give precautionary credit lines to member states in difficulty.

(Reporting by Yann Le Guernigou; Writing by Catherine Bremer; editing by Paul Taylor)