Germany and France are split ahead of crucial summit talks tomorrow over how to strengthen shaky European banks and fight financial market contagion to prepare for a possible Greek default.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will try to bridge sharp differences on how to use the eurozone's financial firepower to counter a sovereign debt crisis that threatens the sluggish global economic recovery.

A German source said Paris wanted to tap the eurozone's 440-billion-euro rescue fund to recapitalize its own banks, which have the largest exposure to peripheral eurozone debt, while Berlin insisted the fund should be used only as a last resort when no national funds are available.

After meeting Dutch premier Mark Rutte, Merkel confirmed the German position was that the European Financial Stability Facility was a backstop to be used "only if that country is unable to cope on its own."

Merkel said struggling banks should look first to the markets, then their national government, and only in the last instance the EFSF, and with reforms as a strict condition.

"This will definitely be discussed at the next summit," she said, referring to an European Union leaders meeting on October 17-18 for which she and Sarkozy will attempt to set the agenda.

Source:shanghaidaily