Eurozone banks to raise more than 100bn euros

A recommendation that European Union banks should raise more than 100bn euros ($140bn; £87bn) in new capital will be put to tomorrow's summit of EU government heads for ratification.

That was the main decision made today by EU finance ministers meeting in Brussels (the meeting has just broken up).

According to officials, it was a difficult negotiation which last several hours longer than expected.

"There was a moment around lunchtime when the meeting could have been adjourned with no agreement," said an official. "An intervention by the chancellor, backed by Germany and France, persuaded the finance ministers to remain until agreement was reached."

Most of the capital - a protection against possible losses on loans to highly-indebted countries - is expected to be raised by banks from Greece, Portugal, Italy, Spain, Germany and France.

At this stage, it is unclear how many of these banks will be able to raise the money from commercial investors, how much of the capital will have to come from national governments, and how much will be required from the eurozone's bailout fund, the European Financial Stability Facility (EFSF).

It is understood that UK banks will not be required to raise capital to bolster their reserves.

The formal detail on all this will not be published till next week.

The strengthening of banks will be part of a three-pronged approach to stabilise the eurozone.

Eurozone governments are still struggling to agree on another vital element of this eurozone rescue package, namely how to increase the financial firepower of the EFSF.

A French suggestion that the European Central Bank should lend alongside the EFSF to raise its lending resources to more than 1tn euros appears to have been blocked by Germany and the Netherlands - although an official said the idea was not yet completely dead.

If a partnership with the ECB is ruled out, there would be two other options: the EFSF would provide guarantees for loans made to countries like Italy, if Italy finds it impossible to borrow on the basis of its own perceived credit-worthiness; or the EFSF could provide those guarantees to a new fund, that would borrow from stronger countries such as China, and then channel the finance to a Greece or Italy.

It is widely believed that using guarantees to increase the firepower of the EFSF in either of these ways would impose so much additional strain on France's public-sector balance sheet that France is likely to lose its cherished AAA rating - which would then make the eurozone even more dependent on the financial strength of Germany.

UPDATE 19.01

Eurozone finance ministers' decision that European banks should raise more than 100bn euros of new capital is an important step towards averting a full-scale financial crisis, but it is only a step.

Whether it persuades investors that European banks will be strong enough to withstand possible losses as and when eurozone countries fail to repay all they owe, well that won't be known till the detail is published next week of how much individual banks will have to find.

There is an understandable fear that some big banks perceived to be weak won't be strengthened sufficiently, because their respective governments would want to avoid the national humiliation of admitting that these flagship institutions have become fragile.

This fear among investors has been increased as it has become clear in the last few days that European banks would be forced to raise significantly less than the 200bn euros in aggregate that the European Banking Authority, the overarching EU regulator, originally estimated that European banks need.

Of the 100bn euros that will be provided to banks by commercial investors, national governments and the EU's bailout fund, most is expected to go to banks in Greece, Italy, Spain, Portugal, France and Germany - because they have the biggest exposure to the most indebted governments.

British banks will not have to raise a bean, partly because they raised tens of billions of pounds of capital, much of it from taxpayers, in 2008 and 2009, and partly because they don't have massive loans to the likes of Greece and Italy.