Sarkozy And His Incredible Shrinking Banks

I've been pussyfooting around this French bank thing because I didn't want to be seen as a conspiracy theorist.

However, from a gut feeling standpoint, the moment I heard about the Dominique Strauss-Kahn case I thought it sounded fishy.

Instead I typed stuff like this:

I thought the first shoe to drop would be a French bank. But it's not over yet. 6/24

I hope Sarkozy got what he wanted with Christine Lagarde as the new head of the IMF. 6/29

The most explicit post was Italy's Troubles Highlight France but I still did not squeeze the trigger. I did pose a damaging question and added a bit of speculation:

Why do I have a gut feeling that Christine Lagarde's appointment to head the IMF signals that French banks are in so much trouble that any bailout would require the IMF to help the ECB?

This is pure speculation, but somehow I think it could be France that brings about the end of the Euro.

Most recently was this blurb, but it too avoided what I really felt.

This morning in Bloomberg I noticed Sarkozy is getting some press along with France, and it isn't good.....Keep this on your radar amid any euphoria over debt deals, here or in Europe. The patient is dying and they're handing out aspirin. 7/21

Enough of this. Here are my true thoughts.

I think French banks are toast.
I think Sarkozy knows they are toast.
I think Sarkozy is toast.
I think the euro is toast.
I think the EU is toast.

The front-runner in the polls for the April 2012 French presidential race was Dominique Strauss-Kahn. Before his arrest, Strauss-Kahn had been widely expected to challenge Sarkozy.

I sense that Sarkozy was so fearful that the European sovereign debt contagion would spread to his country's banks that he took the easy way out and had his main opponent removed. It would have been very difficult for Sarkozy to win re-election with a nation full of Les Miserables if their bank deposits were in jeopardy.

Then the French replacement, Christine Lagarde, made perfect sense.

. . . Christine Lagarde's appointment to head the IMF signals that French banks are in so much trouble that any bailout would require the IMF to help the ECB . . .

I've often found it strange that Angela Merkel has consistently put herself in danger at the polls in her own country to appease Sarkozy. I do not think it's because the guy is a shrewd negotiator. I think it's because he has likely confided in her. "Angela, nous sommes tres screwed."

I think there's a good reason why the euro is often referred to as "The Euro Project." Projects usually lack 100% commitment and follow through. This project seems no different. Perhaps it worked like this: Germany was the producer, France was the financier, and the PIIGS were the borrowers and consumers.

In the long run, I don't worry much about Germany. And consumers can always consume less, or not at all. But when there's a few trillion that can't be paid back, it's not the borrowers that have the problem, it's the bank. And France is the bank.

Which is why Peter Yastrow caught my attention this morning. While viewing the recent action in eurodollar futures, he said in plain English "It appears France is going to have a problem." Who knows when it will hit, but it will. And though I've very wrong thus far that the contagion would spread to the Swiss franc, I maintain that it will . . . soon. Eastern Europe is next in the cross-hairs once Europe begins to fail in ernest, and Switzerland was their "bank." (Skip to 4:38 if you want to avoid Andrew Ross Sorkin.)