CRASH 2: Onstage, Merkel in the spotlight. Offstage, Sarkozy dans la merde.

Increasingly alone, Sarkozy faces growing problems at home.

As I start to write this piece, Christine Lagarde of the IMF and German Chancellor Angela Merkel are sitting down to chat tersely about the eurozone crisis. Although this looks like more crisis diplomacy, the meeting was actually lined up ten days ago as a routine base-touching session about how well everything seems to be going. But nothing is routine about the world econo-fiscal outlook at the minute. And although Jean-Claude Trichet will join the session, this too was scheduled. However Merkel has added another player – Wolfgang Schauble – in the last day or so. This further convinces me that these two remain politically closer than many folks realise…despite Die Zeit’s bizarre splash the other day about Schauble ‘going rogue’ on the subject of Greek default. There are many in the CDU who already see Wolfie as something of a rogue in the knavish sense; but he’s more wily fox than rogue elephant – in or out of the room.

Out of the limelight, however, President Sarkozy of France is not getting much sleep. His problem – as the French press are starting to describe it – is how to shape ‘Un budget pour le triple A’ – a programme of bailouts for French banks and expenditure savings that might at least stand a chance of helping the country retain its coveted AAA credit rating. The French deficit is now bigger than the nation’s education budget, and in a melange of measures involving admin cuts and increased taxation, Sarko announced yesterday that a package of 11 bn euros in savings will be going into the 2012 budget. But the public sector – vastly understated by France’s eccentric accounting system – is once more to feel nothing more painful than non-replacement of retirees. There isn’t much sign that Elysee officials have grasped the size of the problem, as yet…going forward and all that.

The problem, of course, is Nicolas Sarkozy’s sudden realisation that his lately-departed genius Christine Lagarde was telling des tartes de porcs when she said the French banks were AOK, and capitalised up to the eyeballs in readiness for the Greek Wave. (The Greek Wave is like a Mexican Wave, except that everyone in the crowd drowns. Only then do the banks feel better.) It transpires that at least three of the French version may well be heading for a fall.

As David Victoroff writes in today’s Valeurs Actuelles, “While trying to convince outsiders that it’s got a grip of things, the truth is that [the Government] has made all its assumptions based on everything returning to normal once the Greek crisis ends”. This is, patently, the assumption of the century so far.

Some on the lunatic fringe have been asking this week if the ruling UMP Party might dump Sarko, but even the Leftist press dismisses this: come what may, the Right is stuck with the man dubbed ‘Sarko le Psycho’ by the socialists last time around. He was also, until recently, very much the preferred US candidate….a factor that, given Nico’s politics and lineage, was more important than many realise. But influential Washington sources keep on confirming that Sarkozy is a dead man walking: their money – and with so much at stake, it’s big money – is very firmly on Angela Merkel.

Meanwhile, national and personal issues are, as always, to the fore. The ECB’s Trichet just chaired his last rates and liquidity meeting, and now stands a decent chance of writing his memoirs without having to blame himself for anything. One feels somehow that Merkel isn’t going to come too well out of them; but in my view he created (and botched) far more nightmares than she did. Tricky leaves on a spendthrift note by his standards, pumping another 45bn euros into the system and dropping huge hints of rate cuts to come. In the UK, Mervyn King has splashed out £75bn on our very own QE2, which as ocean-going liquidity vessels go is really more of a small tramp-steamer pulling an obese knackered economy behind it. It’s got close to nothing to do with the economy at large, really: just one, last despairing attempt to give our still-shaky banks an opportunity to make some money, hopefully to be spent on sandbags.

More later if anything develops.