The Damning Effect of Banks on the French Economy

Jan 4, 2012
Kaveh Farzad

French President, Nicolas Sarkozy - Google-Images

The French banking system is nearing collapse, through a wave of corruption and political intrigue reminiscent of the US crisis in 2008; an ongoing cycle.

In a desperate move to save his nation from a credit downgrade and economic collapse, France’s President Nicolas Sarkozy is on a warpath of budget proposals for the new year that will tighten the Parisian belt and ward off the fear of fleeing investors.

While the credit rating issues in France are different somewhat from the downgrade the United States recently faced, the same issues remain in both, and seemingly all of the top western states, and that is the reliability and destructibility of big banks on a nation’s economy.

The 'Occupy Wall Street' protests in the US and elsewhere are a clear indication of the various moods and sentiments of the people of these states, where private enterprise and initiative seem to control, manipulate and dictate law, economics and general modes of life. How and when will it end?

In a BBC News article on French economics, Robert Peston went so far as to say that, “France is held hostage by its banks.” Much like the US banking system, the economic structure of the country is reliant on the stability and function of its banks, and therefore, there exists a relationship built out of fear, greed and necessity.

The French banks in particular are commercial and avaricious on markets; they are barely even detached from the French state. If the banks cannot meet their financial obligations, then it is on the state to make it up for them, and so wouldn’t it be obvious that it would work the other way as well?

It’s prudent to remember that when the American federal government paid out more than 700 billion dollars to the big banks in 2008, so that the banks could in turn filter out that money to the general public by giving out new loans with good rates, the heads of those firms lined their own pockets while making almost no contribution to the economy.

The point of the measure was an effort to instill confidence in investors, to pull the system back from the brink, and one could make the argument that in that way, it succeeded.

The greater problem isn’t America’s or France’s alone. As was made obvious through the continued divisive debates and meetings among members of the EU, primarily Sarkozy and Merkel, the Federal Chancellor of Germany, all these banks and all these states are intertwined. Greece affects the stability of France, of Germany, and likewise through a domino effect, the United States.

France itself has been through the ringer recently, with a startling reduction in investors to an inability for either the state or banks to pay their respective debts. When there is an entire nation’s economy built on greed and advancement, how long could that economy be expected to sustain itself?

The inability of the French banks to cope with the losses incurred from the Greek debt has only made blatantly visible the fragility and instability of its economic system and its meager attempts to stave off a credit downgrade.

It’s biggest banks have lost half their share value in the last several months, and while in any other nation with the size and influence of France this may incite panic, the French believe that its bigger economic problems are the spiraling debt, stagnant growth, low business morale and consistently rising unemployment. That has nothing to do with the fact that the money circulating the state is in the hands of a select few and not those elected to represent the citizens of the state? As seen in the United States, when the keys to the treasure chest are controlled by corporate leaders and bankers, and not those elected by the people, can there ever be full trust and responsibility behind the actions of the bankers?

Unsurprisingly, like the United States, the economic sustainability of the state relies too heavily on politics; as the key political figures in the US and other nations going through these troubles are funded, influenced, and sometimes even discovered through the initiative of private, corporate enterprise. You don’t need to know much about the political structure of France, but it’s common knowledge that a person won’t be elected to a serious office in the US without millions in the bank and donors with millions backing them.

France hasn’t had a balanced budget since 1974 and, like the US, has been living beyond its means for the last decade. It’s been lauded as the European nation that can boast the lowest poverty rate, the best health care system, and the greenest country in the industrialized world. Despite that, the holes are starting to appear. France has an abysmal social security deficit, as well as serious deficiencies in central government finances and local authority.

Economists widely believe that if the newly proposed 130 Billion Euro Greek bailout fails, Greece will naturally have to leave the EU. (Schultz) Doing so will only solve one of the many problems France and other European states are currently facing. Its banks are threateningly exposed to those European states closest to financial ruin, like Greece, Spain and Italy. With the imminent fall of Greece, French bankers have little or no option but to see their investors run for the hills while preparing themselves for substantial losses. Economists agree that only a financial injection into the banks would suffice in curtailing the risk of losing creditors’ confidence and bank default. Sound familiar?