France's favourite to head European bank sent for trial on fraud charges

The Governor of the French central bank, Jean-Claude Trichet, was charged with fraud yesterday, damaging his hopes of becoming the new "Monsieur Euro", or head of the European Central Bank, next year.

Reversing the recommendations of the state prosecutor, a magistrate sent Mr Trichet, 59, for trial on charges that he falsified the accounts of the publicly-owned French bank Crédit Lyonnais during the early 1990s.

The affair has some similarities with the scandals over false accounting that have hit large private companies in the US and shaken financial markets in recent weeks.

Mr Trichet, who is one of the most influential figures in European finance, is accused of helping to cover up a huge hole in the books of Crédit Lyonnais when he was the head of the French treasury department in 1992-93.

He will be tried with other bank and government officials in March at the earliest. Shortly afterwards, European Union governments must decide who should replace Wim Duisenberg as governor of the European Central Bank (ECB) in Frankfurt, the organisation that runs the euro.

On the strident insistence of the French President, Jacques Chirac, it was agreed five years ago that the next "Mr Euro" would be a Frenchman and, most likely, Mr Trichet.

Paris insisted yesterday that the central bank governor was still its official candidate. However, this position would become untenable if Mr Trichet were to be convicted of fraud or if his trial was not completed before the end of May, when the ECB decision must be taken.

In that case, President Chirac could be said to have ruined his own candidate's chances. The French President insisted in 1996, when he was at daggers drawn with Mr Trichet, that criminal investigations into the virtual collapse of Crédit Lyonnais should extend to the public officials who supervised the bank's finances. The bank had suffered hundreds of millions of pounds of losses in 1993.

Mr Trichet, whose name means phonetically in French "to cheat", is regarded by most commentators as a relatively minor player in the Crédit Lyonnais affair, if he played any part at all.

As head of the treasury department at the ministry of finance, he approved accounts for the imprudent and struggling state-owned bank which, it was revealed later, had enormously inflated its assets and its earnings.

Mr Trichet and the head of the Bank of France at that time, Jacques de la Rosière, who has also been charged, insist that they had no way of knowing that the books had been cooked. The French public prosecutor's department, or parquet, decided in May that it agreed with Mr Trichet. It recommended that action against him should be dropped, but sent Mr de la Rosière and other former public and Crédit Lyonnais officials for trial.

The parquet is nominally independent of the government but there have been hints in the media that pressure was brought on the public prosecutors to relieve France's embarrassment over the euro and clear Mr Trichet.

In any case, Philippe Courroye, the independent examining magistrate who has investigated the Crédit Lyonnais scandal since 1996, decided this week to exercise his right to overrule that decision. He insisted that Mr Trichet should also be sent for trial.

Such a decision is rare and creates an awkward legal situation. The public prosecution service can appeal. Otherwise, it must go through the motions of prosecuting in court a man whom it believes should have been cleared. In these circumstances, Mr Trichet has a good chance of being acquitted but possibly too late to rescue his chances of becoming Europe's top banker.

The affair has strange echoes of the Enron and other accounting scandals that have been shaking confidence in the US economy.

Mr Trichet and other French officials are alleged to have come under pressure to disguise the scale of the expansive and disastrous investments of Crédit Lyonnais, especially its ill-advised purchase of the Hollywood movie studio Metro Goldwyn Mayer (MGM).

The story is replete with two-way, transatlantic ironies. At the time of the Crédit Lyonnais disaster, American and British commentators said the debacle was typical of what happened when the state tried to run a private company.

When the Enron and other scandals broke, French commentators pointed to them as an example of the dangers of unregulated capitalism. It is now alleged that, in both public and private cases, officials tried to get out of trouble by hiding the truth.

One vast difference is apparent, however, as the French newspaper Le Monde pointed out yesterday.

The first prosecutions in the Enron affair have already concluded, five months after the scandal broke. In France, almost 10 years after the Crédit Lyonnais disaster emerged, the legal investigation has only just concluded.