With a gaping public deficit and record level of debt, the euro zone's second largest economy wants to be sure it is not sucked into the bloc's game of debt-crisis dominoes, hence Paris's forceful lobbying for ways to shore up Europe's banks.
George Kavanagh | Stone | Getty Images
France is one of the strongest advocates of a Europe-wide banking union and, with an eye on its own banks' exposure to vulnerable debt in struggling countries, for immediate recapitalization of banks from euro zone rescue funds.
"I think the French are pushing this for a simple reason: They bloody well know they're next in line. They're after Italy," said Nicholas Spiro, head of consultancy Spiro Sovereign Strategy.
The debt crisis has already spread through Greece, Ireland and Portugal, all of which have international bailouts. Spain has asked for help for its banks. Cyprus may seek a broader bailout imminently. Italy has recently seen borrowing costs rise to dangerously high levels.
Eager to stop the snowball, France's new President Francois Hollande quickly championed ideas to fight contagion, some of which have brought him into direct opposition with Germany.
Investors are currently giving France the benefit of the doubt, driving French yields to historic lows as they seek the relative safety of debt issued by a core European country that nonetheless offers richer yields than Germany.
However, France's finances are nothing like as good as Germany's, and its banks have heavy exposure to Greece and Italy — a concern that has conditioned its response to the crisis.
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"It's clear that pressure from the debt crisis will come on France and other AAA countries if there is not significant progress in mutualising risks," said Michel Martinez, Societe Generale's chief economist for France.
Spain and Italy's borrowing costs have eased somewhat on expectations that an EU leaders' summit this week will produce bold new approaches to contain the crisis. Short of that, they run the risk of becoming too costly to manage, prompting the need for sovereign bailouts.
Hollande's Socialist government has thrown its support behind the idea of setting up a banking union in Europe, with a central supervisory authority, joint deposit guarantees and a fund to wind down dud banks.
But France is also pushing for more immediate solutions that could shelter banks from the risks associated with the sovereign debt of southern Europe, fully aware that the crisis could deteriorate with lightning speed.
Paris has been a vocal supporter of using the euro zone bailout funds to recapitalize banks directly, although Germany's opposition to the idea remains a major obstacle.