French banking giant Credit Agricole says it will sell billions of dollars in assets to deal with subprime losses by its investment arm. From Paris, Lisa Bryant reports the new financial blow adds to the economic worries in France, where the center-right government hopes to push through tough reforms.
France's Credit Agricole bank says it will sell $7.75 billion in assets and name a new head of its investment banking arm to cope with losses related to the U.S. subprime home loan crisis - and the fallout from the global credit crunch.
The announcement is the latest example of how the credit crisis in the United States has spilled over to other countries, including those in Europe - most notably Britain.
But American University of Paris business school head, Ali Fatemi, says the subprime crisis has had a mixed effect in Europe - and may not necessarily be a huge blow for France, where the housing market, for example, remains resilient.
"I think the impact on Europe is going to be different in different countries," he said. "The most severely hit will be Spain, because it had the highest rate of growth. France is not growing anyway - under two percent - so it is not going to be important. U.K., I think it is over."
But European economies may be harder hit if the United States should dip into a recession. That could spell bad news for France, where French President Nicolas Sarkozy is trying to push through budget cuts along with reforms in areas like retirement and working hours.
The measures have not been well received. Teachers, students, and civil servants took to the streets across the country to protest government cuts in teaching staff and other austerity measures.
"If the economic situation worsens in France and in Europe in general, his reforms will become more difficult," Fatemi said. "Mr. Sarkozy has a majority in the parliament . The only problem is that if opposition to him grows because of economic problems, he may lose control of his own party."
But Fatemi believes Mr. Sarkozy is likely to succeed in pushing through his reforms and finish in July, when France takes over the rotating European Union presidency.