EU finance ministers outlined a deal Saturday for recapitalizing European banks, and the leaders of Germany and France said they hoped for a breakthrough in tackling the euro zone debt crisis at a summit Wednesday.

    After nearly 10 hours of talks, finance ministers overcame strong opposition from Spain, Italy and Portugal and agreed on the need to inject around 100 billion euros (US$138.67 billion) into European banks to protect them from the threat of a Greek debt default, and the broader risks of financial contagion in the euro zone.

    The ministers will submit their thoughts to EU leaders and discuss a “comprehensive” solution to the debt crisis, which needs to contain a second bailout program for Greece, a scaling up of the euro zone’s bailout fund, and the strengthening of European bank balance sheets.

    No headline deal was expected from Sunday’s meeting, but German Chancellor Angela Merkel said she was hopeful that another euro zone summit scheduled for Wednesday would produce definitive results and France’s Nicolas Sarkozy agreed.

    “We have to take far-reaching decisions,” Merkel told reporters ahead of a pre-summit meeting near Brussels. “I believe that the finance ministers made progress, so that we can achieve our ambitious targets by Wednesday.”

    Progress has been made. Between now and Wednesday a solution must be found, a structural solution, an ambitious solution, a definitive solution.” Asked if he was confident that could happen, she replied: “Yes, otherwise I wouldn’t be here.”

    During their meeting Saturday, EU finance ministers heard from the head of the European Banking Authority, who told them that if EU banks were to raise their core capital ratios to 9 percent, and if the bad government bonds on their books were accounted for at current prices, then between 100 and 110 billion euros was needed to shore up the banking system.

    Italy, Spain and Portugal, which face paying a hefty price to strengthen their banks, were reluctant to agree a deal that they see as putting them more in the firing line than France and Germany, who also have large exposure to Greek debt.

    But under intense pressure from the other 24 EU states, the outlines of a deal were agreed, officials said. “We have laid down the foundations for an agreement,” said Swedish Finance Minister Anders Borg as he left the meeting, a position seconded by Britain’s George Osborne.

    If EU leaders are able to reach a deal on bank recapitalization in the coming days, it would be a significant step forward in efforts to contain a crisis that has raged for nearly two years and threatens the EU and global economy.

    But several major areas of disagreement remain and it will require vast amounts of hard negotiation between yesterday and Wednesday to strike a deal that convinces financial markets and Europe’s major trading partners that the crisis is in hand.

    The biggest sticking point is agreeing on how best to scale up the European Financial Stability Facility (EFSF), the 440 billion euro emergency fund set up last year and so far used to bail out Ireland and Portugal.

    Financial markets are not convinced the EFSF is big enough to handle the threat of deeper bond market turmoil in Spain and Italy, so leaders are examining ways they can raise the EFSF’s firepower without increasing their commitments to the fund. (SD-Agencies)