PARIS — French banks are ready to participate in the rescue of Greece by extending the maturity of their holdings of debt issued by that country, President Nicolas Sarkozy said Monday.
A plan is being worked on between the government and French lenders to reinvest, between now and 2014, 70 percent of their holdings of Greek debt into new securities with a duration of 30 years, he said.
Mr. Sarkozy said he hoped that the other European countries would adopt a similar plan. Germany had previously pushed hard to obtain a tough, compulsory private sector involvement in the Greek bailout but backed down amid opposition from France and the European Central Bank.
“We’ve been working on this with the banks and insurance companies,” Mr. Sarkozy said at a news conference in Paris. “We’re committed to going from a principle — the voluntary participation of the private sector — to concrete reality.”
“If it wasn’t voluntary, it would be viewed as a default, with a huge risk of an amplification of the crisis,” he added.
In announcing the voluntary restructuring plans, Mr. Sarkozy was confirming a report earlier in the newspaper Le Figaro, which said that the banks were ready to re-invest, or roll over, much of their holdings of Greek sovereign debt.
According to Le Figaro and other French press reports, the rollover would concern 70 percent of the redemptions in 2011 and 2012. It would be split in two, with 50 percent re-invested in Greek securities with a maturity of 30 years, paying a coupon close to the current interest rate on the loans to Greece, to which a “GDP growth” link would be added as a sweetener. The other 20 percent would be invested in a separate “guarantee fund.”
The French plan was expected to be formally presented for discussion to the International Institute of Finance, which represents many of the largest global finance institutions, at a meeting of Greece’s creditors in Rome Monday.
“Each country could find it interesting and it shows we won’t let Greece go and that we will defend the euro,” Mr. Sarkozy said of the French plan. “It’s in all our interest.”
An exit from the euro by any country would be “folly,” he argued, as it would raise the repayment costs for any government which chose to devalue its currency while retaining legacy debts denominated in euros.
“We are conducting our own talks,” a German Finance Ministry official said Monday. “The French plan is the French plan. We are not commenting yet on what we might do.”
The official, who was not permitted to speak publicly, said Berlin would wait for a meeting of euro-area finance ministers in Brussels July 3 before publicly outlining its stance in more detail.
Meantime, Prime Minister José Luis Rodríguez Zapatero of Spain was quoted late last week as saying that Spain’s banks were “well disposed” to private-sector involvement in a Greek rescue.
Gilles Moec, an economist at Deutsche Bank, said there would be “quite a few hurdles” for the French plan.
Apart from requiring backing from Germany and other European countries, he said that the Union’s structures created to bail out struggling economies would need to be altered to create the “guarantee mechanism” and that could necessitate Union-wide and national ratifications.
“This does not protect against a political meltdown in Greece this week if the government can’t manage to get its austerity plan endorsed by Parliament,” he added.
A vote on the Greece’s latest austerity measures is scheduled for Tuesday, to be followed by another vote Thursday on separate legislation to implement the reforms.
If the measures are passed, the European Union is expected to announce the size and details of a new, second bailout package at the meeting of ministers July 3.
And assuming that the International monetary Fund approves its own review of Greek measures, Athens should then be able to receive new funds by mid-July.
“If this process is derailed and Greece is pushed into a disorderly default, the spillover effects could be global and may not be contained only in Greece and the rest of Europe.” economists at Bank of America Merrill Lynch said in a research note Friday
The Greek government has already survived a confidence vote, on June 21, related to its handling of the crisis.
Article source: http://www.nytimes.com/2011/06/28/business/global/28iht-euro.html?partner=rss&emc=rss
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