MercoPress. South Atlantic News Agency

Sarkozy and Merkel plan confidence-building summit to prop Euro and markets

The two leaders will have to decide on further beefing of bailout fund

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.

Paris announced the meeting after French banks’ shares was hammered this week in a global market rout that suggested investors have lost confidence in the ability of governments on both sides of the Atlantic to rein in their debt.

After a series of bailouts of debtor states that have failed to restore calm, the two leaders are likely to discuss the need for regular Euro zone summits to coordinate economic policy and may explore more divisive ideas such as expanding the bloc's rescue fund or issuing euro bonds.

Sarkozy's office said the two leaders would meet in Paris, hold a news conference and a working dinner. The French leader said 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 halt 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 trillions off the value of global stocks this month.

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” whereby wealthier Euro zone countries would support weaker ones.