EU warned of credit crunch threat, French banks hit

Barroso talk of euro bond proposals lift markets Geithner urges EU to do V3 Rosetta Stone more to solve crisis German, French leaders tell Greece to stick to plan (Adds statement on Franco-German-Greek talks) By John O'Donnell and Lionel Laurent WROCLAW,Poland/PARIS, Sept 14 (Reuters) - European financeministers have been warned confidentially of the danger of arenewed credit crunch as a "systemic" crisis in euro zonesovereign debt spills over to banks, according to documentsobtained by Reuters on Wednesday. In a report prepared for ministers meeting in Poland onFriday and Saturday, senior EU officials said the 17-nationcurrency area faces a "risk of a vicious circle betweensovereign debt, bank funding and negative growth"."While tensions in sovereign debt markets have intensifiedand bank funding risks have increased over the summer, contagionhas spread across markets and countries and the crisis hasbecome systemic," the influential Economic and FinancialCommittee said. "A further reinforcement of bank resources is advisable,"ministers were told in language that echoed an InternationalMonetary Fund call for urgent Rosetta Stone languages action to recapitalise Europeanbanks.The report highlighted European policymakers' challenge torestore confidence as the leaders of Germany, France and Greeceheld a crucial conference call on efforts to avert a Greekdefault that could cause a global financial shock. Moody's Investors Service downgraded two of France's topbanks, Societe Generale and Credit Agricole ,saying its concerns about their funding and liquidity profileshad increased in the light of worsening refinancing conditions. The ratings agency left France's largest bank, BNP Paribas , on review, saying its profitability and capital basegave it an adequate cushion to support its Greek, Portuguese andIrish exposure.The euro and European stocks were earlier boosted byan announcement by the head of the European Commission that theEU executive would soon present options for issuing a commoneuro zone bond, despite fierce resistance in Germany. Many investors see joint debt issuance as the best way outsince it would reassure markets that Europe's strongesteconomies were V3 Rosetta Stone Spanish taking responsibility for weaker states.

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