The European Commission is to outline within a week how states should recapitalise their banks, but a row between France and Germany over who should foot the bill threatens the pan-EU boost for lenders that investors hope for.

The pending proposal, which an EU source said would be announced in time for a summit of leaders on October 17, had raised high hopes of a grand European plan to prop up weak lenders, driving up stock markets and lifting the euro.

But a German source cautioned yesterday that Berlin and Paris disagree on who should pay to bolster banks, a dispute that could derail any attempt by the EU's executive to co-ordinate help for banks across the bloc.

The stakes are high, with European banks expected to need up to 200 billion euros ($270 billion) to cope with the threat of sovereign default.

Germany, which could easily bankroll its weak lenders, wants countries to stand by their banks. But France, whose banks are heavily exposed to Greek debt and grappling with an interbank lending freeze, fears it could lose its high credit rating by bailing them out.

Rather than a politically embarrassing taxpayer bailout, France would rather shunt the bill onto a euro zone fund, which will soon be able to lend money to governments to help banks.

Germany is insisting this should be only a very last resort.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to meet in Berlin tomorrow to discuss the euro zone crisis, with bank recapitalisation expected to be a central theme of their talks.