The leaders of Germany and France, the eurozone's two biggest economies, have reached agreement on strengthening Europe's shaky banking sector.

German Chancellor Angela Merkel said she and French President Nicolas Sarkozy "are determined to do the necessary to ensure the recapitalisation of Europe's banks".

Merkel spoke after talks with Sarkozy at Berlin's chancellery aimed at forging an agreement ahead of a summit of the European Union's 27 leaders later this month.

Sarkozy said it was "not the moment" to go into the agreement's details but said that the French-German accord "is total".

When asked whether all European banks would be recapitalised, Merkel did not directly answer the question, saying only that all banks across the eurozone would be measured by the same criteria that would be established in co-ordination with, among others, the European Banking Authority and the International Monetary Fund.

Both leaders declined to elaborate on their proposal, saying it must first be discussed with other European leaders.

Earlier this week, Merkel spoke in favour of a co-ordinated bank recapitalisation following talks with the International Monetary Fund and other European leaders.

The chancellor said banks must first seek to raise new capital on the market before turning to their government, insisting that the eurozone's newly strengthened 440 billion euro (£378 billion) bailout fund would then only serve as a backstop if a member state cannot cope with shoring up its banks' capital.

France, however, has appeared to favour turning to the fund's resources right away instead of relying on a national facility to re-capitalise its banks - who are among the biggest holders of Greek bonds.

The chancellor has insisted that the October 17-18 summit of European leaders in Brussels must send a clear signal on the issue in a bid to restore market confidence.