Addressing a joint press conference at the chancellery, the two leaders said they would work for a “closer and more binding” economic and financial co-operation between eurozone countries.
Chancellor Merkel told journalists that the two countries were determined to do the necessary to ensure recapitalisation of Europe’s banks.
The two leaders did not give details of the agreements reached in Berlin.
President Sarkozy said it was “not the moment” to go into the agreement’s details but said that the Franco-German accord was “total”.
“We are very conscious that France and Germany have a particular responsibility to stabilise the euro. We need to deliver a response that is sustainable and comprehensive,” the French leader said.
Other topics on the leaders’ agenda were thought to have been the Franco-Belgian bank Dexia, Europe’s first bank to fall victim to the debt crisis.
Germany and France have differed over how to recapitalise Europe’s banks, said by some to require between 100bn and 200bn euros to withstand the sovereign debt crisis.
Paris is believed to want to use the eurozone’s bailout fund – the European Financial Stability Facility (EFSF) – to recapitalise its own banks, while Berlin is insisting the fund should be used as a last resort.
Most leading economists believe that, to be effective, the eurozone need to have a stronger fiscal authority instead of tying themselves to the moribund growth and stability pact, which they say was rather for recession and not for growth.
Both Chancellor Merkel and President Sarkozy had in recent days met with visiting IMF chief Christine Lagarde. The IMF chief visited Mr Sarkozy in Paris on Saturday and was in Berlin to see Mrs Merkel on Thursday, when the two women were joined by World Bank President Robert Zoellick.
French banks are seen by analysts as over-exposed to Greek, Italian and Spanish debt, and leaders want to prevent any new bigger reduction in Greece’s debt which might trigger a banking crisis across Europe.
German Finance Minister Wolfgang Schäuble told the Frankfurter Allgemeine Zeitung that efforts were needed to “ensure that the banks have sufficient capital to prepare for possible further reduction.
Musah Ibrahim Musah & Mellisa Sheridan