City & Business: A very French folly

The woes of Asian banks may be grabbing the headlines this week, but let's not forget Europe has a scandal of its own involving bad banking supervision and government and management collusion to cover mistakes. Rarely have so few caused so much financial harm to so many as in the case of the ailing French bank Credit Lyonnais. EU anti-trust Commissioner Karel Van Miert told French television this week the bank's mistakes and reckless behaviour in the early 1990s have cost the French taxpayer a staggering FFr150bn (pounds 15.3bn). Other estimates put the final figure at an even higher FFr190 bn. The case of Credit Lyonnais makes one wonder just how much harm has been done to the French economy by the irresponsible behaviour of a handful of executives that ran the bank at the time. In the quest to make the bank the biggest in Europe, their follies included the purchase of a Hollywood studio.

EU officials and the current government are now desperately trying to find ways to save the bank. The most likely scenario will be that the Commission allows the aid on condition the bank is eventually sold to the private sector. Nobody wants Credit Lyonnais to collapse, not least the French government. You can bet your bottom franc the bank's 5 million depositors would take to the streets to protest, possibly violently. That prospect echoes less the troubles in Asia and more the collapse of the pyramid schemes in Albania that triggered anarchy throughout the country last year.