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Time running out

October 19, 2011

The leaders of France and Germany are holding fresh talks ahead of a crunch summit on the eurozone debt crisis. President Nicolas Sarkozy and Chancellor Angela Merkel are under pressure to draw up a plan of action.

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French President Nicolas Sarkozy and German Chancellor Angela Merkel
The two top eurozone leaders have their work cut outImage: dapd

France and Germany are under huge pressure to agree on a broad plan of action ahead of Sunday's EU summit, which is being seen as a crucial venue to draw up solutions to the ongoing eurozone debt crisis.

President Nicolas Sarkozy and German Chancellor Angela Merkel are expected to meet investors' expectations that a huge leap forward will be made in shoring up the eurozone's defenses against market turmoil.

On Wednesday, Commission President Jose Manuel Barroso reminded the leaders of their "to-do" list:

"We must first take decisive action on Greece. Secondly, we have to strengthen the eurozone's crisis tools - the EFSF- and European banks and finally better eurozone governance in future. This is a question of the credibility of Europe," Barroso said in Brussels.

Two trillion euros

German parliament
The EFSF, as it is, made it through the Bundestag last monthImage: dapd

Speculation has been swirling that Berlin and Paris have already got a deal on one crucial bit of that list. Reports say they have agreed to boost the eurozone's bail out fund, or EFSF, to two trillion euros.

However, that's not being done with real cash - but with a system of guarantees, Guntram Wolff, an economist at the Bruegel think tank, told Deutsche Welle.

"At the moment the EFSF is too small. This money is going to come from taxpayers, not from the ECB - but will have an insurance scheme to insure losses on debt," Wolff said.

Pressure on France

For the French President, meanwhile, the stakes have been raised. Attention has increasingly turned to France in the debt crisis and its own economic troubles. Earlier this week the rating's agency Moody's warned that it could downgrade the country if its deficit is not reduced.

Moody's logo
A Moody's warning has given Paris the jittersImage: AP

"France has a major problem with its credit rating. We've had a major warning also in terms of banks' exposure to Greek debt and from other countries," said Fabian Zuleeg, of the European Policy Centre.

Zuleeg added that Germany - Europe's strongest economy - is now firmly in the driving seat when it comes to saving the euro.

Analysts here in Brussels expect the summit to go down to the wire as leaders hammer out a deal before markets open on Monday morning. But whether they can really pull it off is anything but certain.

Author: Vanessa Mock, Brussels
Editor: Markk Hallam