Cautious welcome for Sarkozy-Merkel pact

European shares firmed on Monday as investors gave a cautious welcome to a Franco-German pact to support troubled banks, while Dexia became the first lender to succumb to the eurozone debt crisis.

D.R.

Dexia shares were suspended in Paris and Brussels, after Belgium, France and Luxembourg rushed to the rescue of Dexia, splitting up the lender as other European banks braced for a eurozone recapitalisation plan.

French President Nicolas Sarkozy and German Chancellor Angela Merkel put on
a united front after talks in Berlin on Sunday and promised a response to Europe's
debt crisis within weeks.

Without announcing concrete details, Sarkozy said there would be "lasting, global and quick responses before the end of the month," in time for a G20 summit in Cannes.

The meeting came amid concerns that France and Germany, the two main powerhouses of the eurozone, were at odds over the best way to recapitalise the region's banks.

Germany wants banks that are under pressure to turn to investors for funds before appealing for national or European cash. It wants the EU's 440-billion-euro European Financial Stability Facility (EFSF) bailout fund to intervene only as a last resort.

But France, fearful of losing its AAA credit rating, would rather dip into European funds than its own coffers.

Some commmentators doubt whether the Franco-German pact will resolve the
eurozone's debt crisis, which has already resulted in vast EU-IMF bailouts for Greece, Ireland and Portugal.