UPDATE: Retreat!!

Why is France pushing this €300bn plan (and providing the press with further opportunities to use gratuitous photos of the Presidential wife) if their core banks are so solid?

UBS research of yesterday describes French corporate and investment banking styles as

"offering a generational opportunity in the new environment to gain market share"
and have buys on Société Générale and BNP Paribas.

Citi research (of last week) is less sanguine but not exactly downbeat. Also rating BNP Paribas a buy it regards everyone else as a hold and, in the case of Société Générale and Natixis (the latter of which rejoices in a corporate structure possibly only France could have come up with), high risk.

Nonetheless, such ratings are gold in today's poisonous financial atmosphere and do not readily account for the motives behind the French idea, “catégoriquement” denied as a firm proposal by Christine Lagarde, Economic Minister (see Bismarck Rule on this). Which is somewhat at odds with what Madame La Ministre said yesterday in interview with a German daily:

“What would happen if a small [European Union] country faced the threat of a bank failure? Perhaps it would not have the means to bail out the firm concerned? The question of an EU emergency fund becomes relevant”
Where the €300bn came from is anyone’s guess. But it’s easy to see how 1+1 became 3 and set alarm bells ringing in national treasuries across the EU. Yet the impression remains that the core of the French banking system could not reasonably be described as in dire straits. So, besides the obvious political playing to domestic galleries, what's up?

Here is one explanation. Being behind the curve has been a legitimate criticism levelled at regulators and legislators in the United States. It is entirely plausible that this idea is more forward planning than specific set-up. Which does not imply an inexplicable altruism. France is surrounded by neighbours with banks in various states of acute distress and with whom their own have many commercial ties. There is little point hoping these troubles will respect the national frontiers of the (more) prudent - for in this crisis no economy is an island. Pre-emptiveness is self interest.

Which, of course, does not preclude une bombe.

Related links:
Europe : un plan de sauvetage à 300 milliards ?
Berlin rejette l'idée française d'un plan européen pour les banques
Bercy dément le projet d'un plan de sauvetage européen de 300 milliards d'euros

Many thanks to CDT for the UBS report

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  1. Charles Butler // 10/02/2008 10:47:00 AM

    Not to mention sussing out where Germany might stand on the issue. Good idea to get the politics to come out before the plan.

  2. RJH Adams // 10/02/2008 11:54:00 AM

    Just let a few more landesbank issues surface and they may yet sing a different tune.

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