BRUSSELS (Reuters) – France and Belgium were set finalize the break-up Sunday of Dexia, the first bank to fall victim to the euro zone sovereign debt crisis, with global credit risk exposure of 512 billion euros ($691 billion).
Dexia, whose board was also due to meet Sunday, was forced to seek government help this week after a liquidity crunch hobbled the lender and sent its shares into a tailspin.
Belgian caretaker Prime Minister Yves Leterme told a news conference Saturday evening that final negotiations between France and Belgium would take place in Brussels Sunday.
Finance Minister Didier Reynders said Belgium had been in touch with France, Luxembourg and the European Commission.
"I hope tomorrow we will reach our goals," he said.
The Franco-Belgian bank's near collapse stoked investors' anxieties about the strength of European banks and coincided with growing talk about coordinated EU action to recapitalise banks across the continent.
The burden of bailing out Dexia led ratings agency Moody's to warn Belgium late Friday that its Aa1 government bond ratings may fall.
Some investors view the response to Dexia's woes as a test of European governments' ability to take decisive action to rescue banks if the euro zone debt crisis worsens.
French President Nicolas Sarkozy was due to meet German Chancellor Angela Merkel Sunday in Berlin to thrash out differences on how to use the euro zone's financial firepower to salve a sovereign debt crisis that threatens the global economy.
Dexia's overhaul will see its French municipal financing arm split from the group and merged with French state bank Caisse des Depots and Banque Postale, the post office's banking arm.
The Belgian government wants to nationalise Dexia's largely retail banking business in Belgium.
Healthy units, such as Denizbank in Turkey, will be sold.
A 'bad bank' supported by state guarantees will hold 95 billion euros in bonds, including 12 billion euros of sovereign debt of weaker euro zone periphery nations.
Including 7 billion euros of securities linked to U.S. mortgages, France and Belgium may need to provide guarantees to cover up to 200 billion euros of assets, which would be more than 55 percent of Belgian GDP.
The key issues for Sunday's talks will be how to divide up the 'bad bank' assets, how much Belgium should pay to nationalise Dexia's Belgian banking business and whether others, such as Belgium's regions, would be involved in its purchase.
Dexia's shares have been suspended since Thursday afternoon and have lost 42 percent since last Friday.
(Editing by Louise Ireland)
BERLIN (Reuters) – German Chancellor Angela Merkel will thrash out differences with French President Nicolas Sarkozy Sunday over how to use the euro zone's financial firepower to counter a sovereign debt crisis threatening the global economy.
With the turmoil threatening to spiral into financial meltdown as the value of banks' sovereign bond holdings slide, Merkel and Sarkozy are likely to discuss in Berlin both how to manage Greece, prevent contagion and strengthen lenders.
The implosion of Belgian lender Dexia, the first victim of the crisis, has added a sense of urgency to the talks.
"Dexia will be among the topics that will be discussed but the main topic is Greece and the euro zone, as banks are only a consequence" of the crisis, a source at the French finance ministry told Reuters.
Sarkozy is due to arrive in Berlin late Sunday afternoon and hold a meeting with Merkel followed by a working dinner.
Talks are continuing over a vital aid tranche for Greece, which could run out of cash as soon as mid-November.
"There is a high risk that this crisis further escalates and broadens," German Finance Minister Wolfgang Schaeuble was cited as saying by a newspaper Sunday.
Germany and France have so far been split over how to recapitalise Europe's banks, which Ireland estimated Saturday may need more than 100 billion euros ($135 billion) to withstand the sovereign debt crisis, while the International Monetary Fund (IMF) has said the banks need 200 billion in additional funds.
Paris wants to tap the euro zone's 440 billion European Financial Stability Facility (EFSF) to recapitalise its own banks, while Berlin is insisting the fund should be used as a last resort.
Another key dispute is how to use the EFSF to buy sovereign debt to prevent contagion of the crisis, particularly crucial if Greece fails to secure its next aid tranche.
France does not want to set guidelines for the EFSF on the matter, whereas Germany wants to limit the sum used for each member state and set a time limit for bond purchasing, Handelsblatt reported.
"Given that the EFSF is limited overall, it makes sense also to limit the purchases on the secondary market for each country," Michael Meister, deputy parliamentary leader of Merkel's conservatives, told Reuters Saturday.
There was a danger, otherwise, the funds could be quickly used up, he said.
The two euro zone heavyweights have come under pressure worldwide to resolve Europe's crisis which is roiling markets. U.S. President Barack Obama Thursday urged Europe to "act fast," calling the common currency bloc's crisis the largest obstacle to the United States' own recovery.
World Bank President Robert Zoellick told Wirtschaftswoche magazine there was a "total lack" of vision in Europe and Germany in particular needed to show more leadership.
Merkel will visit Vietnam and Mongolia this coming week.
(Additional reporting by Yann Le Guernigou; Editing by Louise Ireland)
JEDDAH, Saudi Arabia (Reuters) – Saudi Arabia's inflation levels are not worrying and will continue to decline, the country's central bank governor Muhammad Al-Jasser said on Saturday.
"Inflation levels are not worrying. Inflation has become stable since the beginning of the year between around 4.6 and 4.9 (percent)... I expect it to continue its decline," Al-Jasser told reporters on the sidelines of a conference in Riyadh.
Al-Jasser also said that lending levels had risen by more than 9 percent in 2011. "In reality, lending has risen by more than 9 percent this year ... an excellent level," he said.
(Reporting by Ibrahim al-Mutawa; writing by Asma Alsharif)