Berlin talks to forge single line on euro

The French President, Nicolas Sarkozy, meets the German Chancellor, Angela Merkel, in Berlin today as part of a frantic weekend of attempts to shore up the eurozone.

Yesterday, Mr Sarkozy was locked in talks in Paris with Christine Lagarde, the International Monetary Fund chief, over how to help banks with heavy exposures to sovereign debt. The Berlin talks are expected to focus on how to use the eurozone's €440bn rescue fund, so that the two can present a united front at next week's EU summit in Brussels.

The French are, apparently, now keen to tap the fund to recapitalise their banks. This would mean the French government would not have to provide its banks with financial aid, a move that would otherwise risk the country's premier credit rating. The German government believes the fund should be used only as a last resort.

France is also involved with plans this weekend to break up Belgium's Dexia, the first bank to have collapsed as a direct consequence of the euro crisis. France and Belgium have guaranteed Dexia's financing, but a board meeting today is expected to confirm that the bank is to be wound down, with successful parts sold off.

On Friday, Fitch downgraded Spain and Italy's sovereign credit ratings, making it more expensive for them to borrow. Moody's had already downgraded Italy, as well as nine banks in Portugal and 12 in the UK.

The British banks' downgrade was widely expected after the Government's endorsement of Independent Commission on Banking proposals for reform last month. The downgrade recognises that the state no longer offers an implicit guarantee to bailout the banks in a crisis.

The biggest names hit by the British downgrades were Royal Bank of Scotland, Lloyds Banking Group and Santander UK. However, RBS has insisted it remains strongly capitalised, rejecting reports that government officials feared the 83 per cent taxpayer-owned bank needed to raise money.

On Thursday, the Bank of England bolstered its quantitative easing (QE) programme, which essentially means creating new money to stimulate lending, spending and, so, the economy.

The central bank's Monetary Policy Committee (MPC) surprisingly approved £75bn of QE, the first change to the programme since 2009. Sir Mervyn King, the bank's governor, warned of "the most serious financial crisis" the UK had ever seen. The MPC also agreed to keep interest rates at the historic low of 0.5 per cent.