Where would the money come from?

You can understand how they might be grouchy at UBS, the Swiss bank that reckons it has lost $2.3 billion through alleged jiggery-pokery by one of its employees, Kewku Adoboli, only three years after the bank was bailed out by the Swiss government. When one of UBS's economists, George Magnus, says that French banks are now the ones that need to be bailed out – as he did this morning in the Financial Times – you might suspect a tinge of schadenfreude.

But Magnus was only backing up the words of Mohamed El-Erian, head of the financial leviathan Pimco, in the same paper. And when Magnus invokes the spectre of the collapse in May 1931 of the Austrian bank Kreditanstalt, the event generally seen as having made the economic depression that began in the United States in 1929 both Great and global, you sit up and take notice. When multinational efforts to save Kreditanstalt, a huge commercial bank, foundered on national rivalries, the effects rippled outwards with terrifying speed: there was a run on German banks, sterling was devalued, and in the US, bank after bank went belly-up between October and January of the following year.

Why do matters suddenly look so bleak for the French banks? A few years ago they were congratulating themselves on avoiding the rescues the US and British governments had been forced to carry out when banks lent too much money to home buyers who couldn't afford to pay it back. Even as they preened, however, the French banks were lending money to governments in southern Europe, and borrowing American money to do it.

What toxic mortgages were to the Royal Bank of Scotland and HBoS in 2008, to put it crudely, southern European bonds may be to BNP Paribas, France's biggest bank, in 2011. As Alastair Darling reminded us recently, the Treasury stepped in to save those British banks when they were within minutes of switching off their cash machines.

Baudouin Prot, the director general of BNP Paribas, was in the French financial paper Les Echos this morning, blithely assuring the world that everything was fine, even as his bank's shares slid. 'The bank's working normally,' he said. 'It has no problem other than its share price... once the uncertainty about Greece's future and over the euro has come to an end, bank share prices will reflect their intrinsic value.'

As soon as everything is fine, in other words, everything will be fine. The trouble is that Prot's institution is an intimate part of the sick organism that he presents as being external to it. And everything with BNP Paribas is not fine. Along with two other French banks, Crédit Agricole and Société Générale, it owns billions of euros worth of bonds issued by a government (Greece's) that is widely expected to default. The Royal Bank of Scotland owns the same kind of Greek bonds as BNP, and yet BNP claims its Greek bonds are somehow worth one and a half times more than the Royal Bank's. They can't both be right. The FT reported yesterday that BNP executives were trawling the Middle East for somebody new to borrow money from.

If France needs to bite the bullet and rescue its big banks, you might think, so what? Britain and America did it, and they like nationalising things in France, so why not? The question - and here the comparison with Kreditanstalt in 1931 gets interesting - is where the money would come from. Christine Lagarde, the former French finance minister who now runs the IMF, caused ire in elite European circles in August when she said (without being specific about her own country's banks) that European banks had an urgent need for huge wodges of new money, or 'recapitalisation' as the charming euphemism of the trade has it.

But rather than individual European governments rescuing their own country's banks, Lagarde suggested the big pot of money the Eurozone has set aside to help governments in trouble could be used instead. Others have taken up this call. Think about the implications. The self-visualised 'provident' citizens of Germany, Netherlands, Finland and Austria are already unhappy about, as they see it, bailing out the 'improvident' Greek, Portguese and Irish governments. How will they feel if they are asked to stump up even more, on top of this, to bail out fat cat French bankers who got into trouble lending to those same Greeks? There is as yet no strong populist nationalist party in Germany, as there was in 1931, to leverage that unhappiness into power, and only a tiny fraction of the poverty, misery and resentment there was then. Yet history suggests that if a deep enough sense of 'enough, no more' forms, a political mouth will eventually coalesce to articulate the words, as surely as water flows to lower ground.