The past week has shown how difficult it is to translate generic commitments into real plans. The Franco-German fight over how to give the bailout fund, the EFSF, more firepower has once again exposed the cracks in the leading Eurozone duo. But the rift is not just about how best to deal with the sovereign debt crisis, it is also about how to save banks, particularly French banks. President Sarkozy is pushing for almost unlimited financial EFSF firepower because he needs to save the French banking sector from slipping into a very dangerous zone.

Since the beginning of the crisis, bailing out Greece has also meant bailing out European financial institutions overexposed to Athens’ debt. This is a banking crisis as much as it is a sovereign debt crisis. The two are linked and feed each other. And one cannot be solved without tackling the other. In fact, the banking crisis in Europe preceded the eruption of the Greek volcano.

Ireland and Spain are the most obvious examples. There, the sovereign debt crisis is the most direct consequence of attempts by their respective governments to save their banking sectors in the wake of the Lehman collapse. In Ireland, credit default swaps, the cost for insuring Irish debt, had experienced dramatic spikes well before Greece plunged into its morass.

In essence, the inconvenient truth is that the largely homegrown problems in Greece acted as a trigger. They were certainly not the only or primary cause for the wider Eurozone crisis. Still, since the end of 2009, Greece has been the main concern of European policymakers. Blaming it all on Greece is more convenient.

By keeping Athens afloat, Germany and France were not only preventing a disorderly Greek default, they were also trying to shield their financial institutions from deeper trouble. French and German banks exposed to Greek bonds had ample time to write down their holdings of troubled debt. Two years after the beginning of the drama, at least German banks seem to have done just that. They should be able to withstand a haircut of about fifty percent on Greek bonds, perhaps even more, if that is what they are asked to do. Now that the worst seems to be over for German banks, Berlin is quite openly pushing for restructuring Athens’ debt. But while the German banks suddenly seem to be in a somewhat enviable position, the French are overexposed not only to Greece, but also to the sovereign debt of a number of peripheral countries that have come under attack more recently, including Italy and Spain. For French banks, writing down sovereign debt has become much trickier.

The Eurozone banking sector is a very crowded place. Despite the liberalization of the sector in the early and mid-nineties, financial institutions are still regulated by national authorities. Mainly for political reasons, national champions are not the exception but rather still the rule. With so many big players wrestling for profits, taking bigger and bigger risks has become much harder to resist. The French banking sector has been a champion in that regard. It is much more developed and modern than the German banking sector, where only one player, the Deutsche Bank, truly acts on a global level. Germany’s financial landscape has other weaknesses too, mainly centered around the so called Landesbanken, a myriad of hybrid financial constructions still controlled by regional governments, that have clearly outlived their original business model.