European Central Bank council member Erkki Liikanen today stressed the need for bank recapitalisation to counter debt crisis which he considered as Europe's greatest since World War Two.

His comments came a day after the leaders of Germany and France promised to unveil new measures to solve the euro zone's debt crisis by the end of this month, as international pressure builds for bold steps from Europe to avert a global economic backlash.

"Banks need to be sufficiently capitalised. The fate of banks and states is very intertwined," Mr Liikanen said in a TV interview with Finland's public broadcaster YLE.

He warned that if not controlled properly, the Europe's sovereign debt crisis might trigger a new credit crisis.

"If this can't be confined, it begins again via the banks. And the problem applies to all the developed countries - United States, Japan, Europe, although euro zone is in the core here."

Mr Liikanen, also the governor of Finland's central bank, added the bank capitalisation is primarily a task of the shareholders, but the states might need to step in too and the worst banks could need restructuring.

He said the European banks are now having difficulties in receiving funding from the market.

"Especially long-term funding has become more difficult, and that is a problem for long-term investments," he said.

Dexia, the first lender to fall victim to the two-year-old euro zone debt crisis, agreed today to the nationalisation of its Belgian banking division and secured state guarantees in a rescue that could pressure other governments in the region to strengthen their banking sectors.

Mr Liikanen noted European banks were better capitalised than in the global crisis of 2008, but said markets were demanding more now due to states' poorer debt situation.

Reuters