Merkel’s statement that she was prepared to support and decide on a plan to recapitalise the Eurozone banks as early as the 17th October has come as welcome news to the markets.

After the disappointing talks between finance ministers on Monday there had been worries that the EU was divided in its backing to recapitalise the banks.

"I think it is important, if there is a general view that the banks are not sufficiently capitalised for the current market situation, that one does it," Angela Merkel said.

She also said that ‘Germany is prepared to move to recapitalise. We need criteria. We are under pressure of time and we need to take a decision quickly’.

The European Banking Authority does want to raise the banks’ minimum capitalisation levels, but this would require financial support to those banks with high exposure to sovereign debt risk. And the IMF has also called for the Eurozone banks to be recapitalised by between €100 and €200 billion. Morgan Stanley has put it about €140 billion.

But France, whose banks are most exposed to Greek sovereign debt is opposed to this, with the president, Nicolas Sarkozy being worried about the loss of the country’s AAA status as a result.

But Merkel’s comments have given the banking shares a boost with the FTSE up on the day and Lloyds, Barclays and RBS gaining.

But as has been the norm recently, this is just headline chasing. There is no real substance to any recapitalisation plan and there is still the French position to address.

So there is still much to worry about. Professor Irwin Collier, speaking on Bloomberg this morning said that we are now uncomfortably close to a banking crisis.

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