France and Germany ready to agree €2tn euro rescue fund

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Source: The Guardian

France and Germany have reached agreement to boost the eurozone's rescue fund to €2tn (£1.75tn) as part of a "comprehensive plan" to resolve the sovereign debt crisis, which this weekend's summit should endorse, EU diplomats said.

The growing confidence that a deal can be struck at this Sunday's crisis summit came amid signs of market pressure on France following the warning by the ratings agency Moody's that it might review the country's coveted AAA rating because of the cost of bailing out its banks and other members of the eurozone. The leaders of France and Germany hope to agree a deal that will assuage market uncertainties or, worse, volatility, in the run-up to the G20 summit in Cannes early next month.

France would now have to pay more than a percentage point – some 114 basis points – over the price paid by Germany to borrow for 10 years as the gap between the two country's bond yields widened to their highest level since 1992.

On Tuesday stock markets and foreign exchanges reacted uneasily to the damping down of expectations, notably by Berlin, about the prospects of a full-scale deal although EU diplomats close to the talks say the Franco-German agreement covers boosting the financial firewalls for eurozone members to withstand the threat of a "credit event" or sovereign debt default in weaker countries.

Read more: http://www.guardian.co.uk/business/2011/oct/18/france-and-germany-move-towards-2tn-euro-fund