Lagarde funding scandal threatens ruling party’s ‘golden girl’

France’s ruling UMP party is facing further disrepute as the latest in a string of scandals threatens to tarnish the reputation of the party's golden girl, Finance Minister Christine Lagarde.

Earlier this week, France’s public prosecutor called for a full scale judicial inquiry into Lagarde’s involvement in the legal dispute between the business mogul Bernard Tapie and the French bank Credit Lyonnais. Tapie accused the bank, which was state-owned at the time, of misleading him while dealing with the sale of his Adidas shares in 1993. He sued the state for compensation, claiming the final sale price was higher than he had been led to believe. Credit Lyonnais, meanwhile, maintained that it had done nothing wrong.

Jack of all trades A former singer and then Socialist minister, Bernard Tapie went on to own Marseille football club in the mid 1980s, and was considered a symbol of France’s easy-money culture. Bankrupt by 1996, he was imprisoned for match fixing charges for one year. After that, he bounced back to stardom, carving himself a successful TV career.   Despite his socialist roots, he acted as an avid supporter of Nicolas Sarkozy during his 2007 presidential campaign.

In 2007, Lagarde intervened to bring a swift end to the long-running battle. She offered to take it out of court by appointing a special panel of judges to arbitrate the case. The two-decade-long dispute ended a year later with a €285 million settlement in favour of the flamboyant tycoon.

Furious over the huge reparations awarded to Tapie, members of the opposition Socialist Party argued that the case should not have been settled by private arbitration since public money was at stake. Since then, they have clamoured for an inquiry.

Now, they might finally get it.

The ball now lies with the Court of Justice of the Republic, which is the only legal instance authorised to try government ministers. A panel of three judges must decide within one month if the investigation should be launched. If they decide against it, the case will be dropped.

Lagarde, 55, is a popular right-wing politician and a former high-flying lawyer. She has served as a government minister since 2005 and plays a central role in handling the fallout from the 2008 financial crisis and the turbulence in the eurozone.

Lagarde expressed "indignation" at the enquiry and said there was an attempt to libel  her. "As far as I know, there is no new evidence in this case. My reaction is ... calmness about its content but indignation about the way it is being handled," she told Le Figaro newspaper.

‘Order from Sarkozy’

The French finance minister could face a fine of up to €75,000 and a five-year prison sentence if she is found guilty. But many argue it is not her who is to blame, and point the finger at French President Nicolas Sarkozy.

THE ONLY COURT WITH THE POWER TO TRY GOV'T MINISTERS Click on text to enlarge.

Socialist Party [PS] primary candidate François Hollande said he was “very sorry” to see Lagarde taking the flak for the affair. “Everybody knows that Lagarde was not behind this,” he said on French television channel LCP.

Ségolène Royal, also a Socialist primary candidate, echoed Hollande’s statments on French radio the same day. “This was clearly a form of payment for Tapie’s support during [Sarkozy’s] presidential campaign,” she said. “It was an order from Sarkozy”.

The deputy editor of political weekly L’Express, Christian Makarian, told FRANCE 24 that the claims came as no surprise. “So Lagarde acted under superior orders. From where? It’s very easy to guess”. He described the deal as a “financial deal” between Sarkozy and Tapie, which Lagarde then “hurried to carry out," bypassing the prerogative of the parliament.

Dire consequences

With a string of recent scandals already trailing behind it, the UMP is struggling to maintain its reputation. In November 2010, then labour minister Eric Woerth was disposed of over allegations of conflict of interest while foreign minister Michèle Alliot-Marie was forced to resign after it was revealed that she used a Tunisian tycoon’s helicopter for her holiday in Tunisia while an uprising engulfed the North African country.

Losing Lagarde would be a huge blow to the party, shortly before the campaign for the 2012 Presidential election kicks off. “For the Socialists, Lagarde is the perfect target,” explains Makarian. “She’s a success story. Discrediting her will discredit the party as a whole.”

The government has expressed full support for Lagarde, brushing off the affair as a non-issue. “There’s nothing to say on the matter,” said a government spokesperson Wednesday, describing Lagarde as “a woman of integrity, who puts the interests of the state before her own”.

Even if the investigation does not go ahead, the UMP, with near rock-bottom ratings, cannot afford another scandal. “I doubt there’ll be any legal consequences,” says Makarian. “But there will be many political ones. This is very efficient ammunition for the Socialists. And they’re sure to use it.”