THE leaders of France and Germany have announced that they are ready to recapitalise Europe's troubled banks and have reached agreement on a “long-lasting, complete package” to counter the bloc's debt crisis.

But the German chancellor, Angela Merkel, and Nicolas Sarkozy, the French president, refused to go into detail about the plans, saying they had to think of the markets and iron out “technical issues” before consulting the other 25 leaders in the European Union.

The announcement came hours after the governments of France, Belgium and Luxembourg said they had approved a plan for the future of the embattled Franco-Belgian bank Dexia.

“We are determined to do whatever necessary to secure the recapitalisation of our banks,” Merkel said at a joint news conference with Sarkozy at the chancellery in Berlin. “A sound credit supply is the basis of sound economic development,” she added.

Both leaders were tight-lipped on whether they had decided that the 440bn euros bailout fund, the European financial stability facility (EFSF), could be used to recapitalise banks — a position known to be favoured by the French — or whether it could only be used as a last-ditch resort if a member state could not cope with shoring up its banks' capital on its own.

The latter is known to be Merkel's preference, but the other night the chancellor would only say: “Germany and France want the same criteria to be applied, and criteria that are accepted by all sides.”

Merkel added: “We are not going into details today,” adding that the duo would present a “complete package” for stabilising the eurozone at the end of the month in time for the G20 summit in Cannes on November 3-4. “This summit has to be a success for the sake of the global economy,” she stressed.

Sarkozy said he was of the “unshakeable belief” that all 17 eurozone countries would soon ratify the controversial bill to expand the EFSF's capabilities — despite widespread fears that political infighting could mean that it would not pass in Slovakia, which is expected to be the last parliament to vote on the measures. He too would not elaborate on his agreement with Merkel, saying only that there were “technical issues” to resolve before it was made public, and that releasing information prematurely could affect the markets.

Germany and France, which together represent about half of the 17-nation currency zone's economic output, regularly hold talks before EU summits to chart out joint positions.

While Merkel and Sarkozy refused to reveal exactly what lies ahead, German media was reporting that eurozone officials are planning for a scenario in which investors would take a haircut of up to 60 per cent on Greek bonds. —The Guardian, London