Merkel to hold talks with Sarkozy amid euro crisis By the CNN Wire Staff

German Chancellor Angela Merkel at the Christian Social Union Party conference in Germany, on October 7, 2011.

STORY HIGHLIGHTS

• France's President Sarkozy visits Germany for talks with Chancellor Merkel
• Europe is facing a debt crisis and Greece is running out of cash
• A Greek default would affect the world banking system
• Experts say talk of the collapse of the euro is alarmist

Berlin (CNN) -- French President Nicolas Sarkozy sits down for talks with German Chancellor Angela Merkel Sunday as the leaders of Europe's two biggest economies fight to keep the continent's currency experiment from collapsing.
The meeting comes amid fears that Greece will default on at least some of it debts, having warned it will run out of money this month.
That will put pressure on the euro, the common currency used by Greece and 16 other European Union countries.

Eurozone crisis at heart of meeting

But Merkel cheered European stock markets on Thursday, hinting that governments could inject cash into troubled banks.
Merkel said providing government money for European banks that are struggling with liquidity issues "is sensibly invested" if it's clear that such action is needed to prevent a broader financial crisis.
"We should not hesitate," she said, "because otherwise there will be far greater damage to our systems."
European banks have been struggling with fears about potential losses on government bonds issued by troubled European governments such as Greece. The threat of a so-called sovereign debt contagion has also led to a pullback in lending between banks.
The IMF recently estimated that European banks face an overall credit risk of up to 300 billion euros ($401 billion) stemming from bonds issued by Greece, Portugal, Ireland, Italy, Spain and Belgium.
Analysts suggest the euro will survive, but that tense times lie ahead.
"The system will hold together but it will not be a stress-free exercise. The benefits of keeping Europe and the euro together outweigh the risks over the long-term," said James Rickards, senior managing director at Tangent Capital Partners. "What's going on in Europe is classic brinksmanship."
Dan Dorrow, senior vice president of research at Faros Trading, an independent currency broker-dealer, agreed.
"The risk of someone leaving the euro is a small tail risk probability," said Dorrow.
Merkel and Sarkozy's meeting Sunday comes ahead of a meeting of finance ministers of the Group of 20 nations in France October 14-15.