French banks hit amid worries over Greek exposure

Paris’ CAC40 was down almost five percent on Monday, Frankfurt’s Dax was off three percent and the FTSE in London plunged two percent. Exchanges in Asia also saw sharp losses. Japan’s Nikkei closed down just over two percent while the Hang Seng in Hong Kong drooped by 4.2 percent.

Despite efforts by French banks to offload much of their Greek contracts, it remains unclear the extent of their exposure, an uncertainty that led Moody’s Investors Services to warn three months ago it might downgrade the ratings of some.

The rating agency put the larger French financial outfits on a three-month review on 15 June, a review period that is almost over.

European leaders are scrambling to get a head of the rout, with an emerging consensus that much more profound EU integration, in particular a centralisation of fiscal-policy-making, including tax harmonisation, is needed.

Deeper European integration is coming, EU Commission chief Jose Manuel Barroso declared on Monday, but the process will be “democratic” he said.

“To have success we need more, not less, Europe. Deeper integration is part of the solution to prevent debt crises in the future,” he said in a statement following a meeting on the eurozone crisis with German Chancellor Angela Merkel on Monday.

“It will not happen overnight, but it will happen, in a steadfast, democratic process.”

The commission chief said that both the EU executive and Germany are working for the bloc to “emerge from the crisis stronger, as a ‘Stability Union’ and as a ‘Growth Union’.”

He also warned however that heavily indebted countries must stick to promises made to international lenders to stabilise their finances, hinting that bail-out cash will not be there if they do not.

“Help can only continue to those who make all efforts to bring their house in order,” he said.

In a highly unusual development, US treasury secretary Timothy Geithner announced on Monday that he would be travelling to Poland to attend a meeting of EU finance ministers at the end of the week.

According to a Treasury Department statement, Geithner is to “discuss with his European counterparts their efforts to contribute to global economic recovery.”

The threat that the European sovereign debt crisis poses to global economic stability has prompted public criticisms from Washinton of EU leaders for their inability to get the situation under control.

“Europe needs to take more forceful action to generate confidence that it can and will resolve its crisis,” Geithner said in a statement on Friday. “This requires governments working together and alongside the European Central Bank in an unequivocal commitment to support Europe’s financial system and ensure governments can borrow at sustainable interest rates as they reform.”

Later speaking to Bloomberg TV, Geithner said the EU must do “whatever they can” to bring the crisis to a close.

"I think it's in the interest of the United States and the Europeans to do whatever they can to make sure they ... calm these pressures now spreading across Europe. It's very important to us and to the world economy as a whole."