Sarkozy defends decision not to take bank stakes

FRENCH PRESIDENT Nicolas Sarkozy has defended his government's decision to offer financial help to banks without then taking stakes in them.

At a forum yesterday on sustainable finance, Mr Sarkozy said that if Britain had taken stakes in some of its domestic lenders, it was because such institutions had greater exposure to US financial risks.

He said they were in a worse position than French institutions.

While France had joined hands with Belgium and others to save Franco-Belgian bank Dexia SA, which itself had heavy exposure to financial problems in the United States, it had not acted in such a way with other banks, the French president said.

"Why enter the capital of banks which only need a guarantee?" Mr Sarkozy asked.

"We are not going to go from the excesses of financing freed from all guarantees to a system whereby the state would be led to play banker, which would be a detestable system."

Mr Sarkozy added: "And I am not persuaded that because you take 10 per cent of the capital of a bank and you have an administrative post that the bank will obey as a result."

Critics of the government plan in France, including some members of the opposition Socialist Party, have argued that France should have taken stakes in banks which were benefiting from state aid.

However, Mr Sarkozy said that what was of paramount importance in France was saving ordinary depositors who had flirted with a banking crisis of huge proportions earlier this year.

"If we had let the system go, there would have been a total collapse and we would have seen ourselves in the situation of 1929, where people queued at counters to get their money," the French president said.

To help restore confidence within the banking system, France has earmarked up to €320 billion to guarantee bank debt.

In addition, the French government has set up a funding vehicle worth €40 billion to help recapitalise financial firms in need of assistance.

In September, France joined hands with the Belgian government and with other stakeholders to grant Franco-Belgian bank Dexia a €6.4 billion bailout. - (Reuters)