As the furore grows over the EADS trading scandal in France, politicians are now asking why state bank CDC was ordered to buy shares before they fell.

The role of the French state fell under the spotlight in the EADS share-trading scandal yesterday as politicians questioned why a state bank CDC had been ordered to buy shares shortly before their value fell.

A mounting political furore this week has focused on decisions by private shareholders and executives to sell shares before EADS's planemaker Airbus admitted production problems in June 2006, which caused a massive sell-off in EADS stock.

The people involved made capital gains on paper but all have denied insider dealing or knowing in advance of the A380 upset.

Yesterday attention swung towards the losses sustained by CDC after it agreed to buy part of the shares at peak prices amid suggestions it faced pressure.

President Nicolas Sarkozy's official spokesman demanded explanations on the involvement of state bank CDC in share trades in 2006 which have become the focus of an insider dealing investigation by French regulators and a judge. A French Senate panel began emergency hearings on the issue.

"We need as much clarity as possible on the role played by the CDC," Mr Sarkozy's spokesman, David Martinon, told reporters.

Controversy over the sale of stakes in EADS by major shareholders and executives dates back to 2006 under a previous conservative government of which Mr Sarkozy was a part.

A preliminary report to prosecutors was leaked in the press this week, and is dominating the French political agenda.

"The role of CDC at that time remains surprising to me, and I don't see why they had to take up shares in this context. It was a very bad deal for the CDC," European Affairs minister Jean-Pierre Jouyet told RTL radio.

CDC agreed to buy part of a 7.5 per cent stake being sold by media firm Lagardere, and paid €32.60 for a stake of 2.25 per cent which is now worth €22 a share.

In May this year, CDC announced provisions of €126 million related to losses on the EADS transactions.

Stock market regulator AMF has informed prosecutors of "concurrent and massive" dealing in EADS shares before its planemaker subsidiary Airbus announced worsening delays to its A380 superjumbo in June 2006, a judicial source said this week.

The regulator's interim report, whose existence was first disclosed in Le Figaro, does not make any formal accusations.

Airbus chief executive Tom Enders became the latest senior EADS figure to issue a denial of any wrongful trades yesterday.

Lagardere and the other core industrial shareholder in EADS, German car firm Daimler, announced they were reducing their stakes in April 2006, 10 weeks before the share slide.

Both firms have denied any wrongdoing or advance knowledge of A380 problems when they decided to sell. They are part of a shareholder pact with the French government, which says the treasury was unaware of problems on the A380 superjumbo.

Asked whether Mr Sarkozy knew of Airbus problems as far back as December 2005, either through his role as interior minister or personal ties to Arnaud Lagardere, Mr Martinon said: "No."

Yesterday's comments illustrated the widening gulf between Mr Sarkozy's government and the previous government of the same party led by his rival Dominique de Villepin, already accused by his successor of leaving France virtually bankrupt.

Mr Martinon welcomed the decision by a Senate committee to question former finance minister Thierry Breton and others.

"If the facts turn out to be true, then it is very serious and... hearing Breton goes in the right direction."

Clearly angered by the scandal, Mr Breton, however, told the Senate panel he had acted properly. "I never gave a single instruction to the CDC to buy shares."

Set up in 1816 to repair public finances left in disarray by Napoleon, state-owned CDC is widely referred to as the financial armoured division of the French Treasury but has increasingly sought to stake out its independence from government.

Mr de Villepin said on taking office in 2005 that the CDC could buy stakes in companies as part of his policy of "economic patriotism", designed to fend off unwelcome takeover bids.

Conservative politician Philippe Marini described the bank as an "absolute monarchy at the heart of the state", but said it suffered from ambiguity in its relations with the state and should be granted clearer procedures and oversight. - (Reuters)