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French banks ready for big Greek debt rollover

By Greg Keller

Associated Press

Published: Monday, June 27 2011 7:55 a.m. MDT

France's Prime Minister Francois Fillon, left, and France's President Nicolas Sarkozy, right, are seen prior a press conference at the Elysee Palace, Monday, June 27, 2011. French banks are ready to help troubled Greece by accepting a significant debt rollover, President Nicolas Sarkozy said Monday, a move that could push other banks to pitch in to the Europe-wide effort to keep Athens from defaulting.

Michel Euler, Associated Press

PARIS — French banks are ready to help troubled Greece by accepting a significant debt rollover, President Nicolas Sarkozy said Monday, a move that could push other banks to pitch in to the Europe-wide effort to keep Athens from defaulting.

Sarkozy said the plan would see banks reinvest their Greek debt holdings into new bonds over 30 years. That would give Greece valuable funding to manage its huge debt load and buy it time to reform its economy.

French banks are among the biggest holders of Greek sovereign debt — some €15 billion ($21 billion)— with Germany's financial sector also heavily exposed, to the tune of €22.7 billion.

Sarkozy urged others to follow the example of the French plan, which was presented Monday at an international meeting in Rome where banks and financial institutions discussed what the private sector can do to save Greece from default.

The closed-door meeting was organized by the International Institute of Finance and the director-general of the Italian Treasury Ministry, Vittorio Grilli, in his role as president of the eurozone economic financial committee. It ended without a statement.

The LaPresse news agency, without disclosing its sources, said there was "consensus" on renegotiating Greek debt along the lines suggested by French President Nicolas Sarkozy.

A spokesperson for the Treasury Ministry, speaking on the usual ground rule of anonymity, said "no decisions, either formal or informal, were taken. It was just an exchange of views today."

A report in Le Figaro newspaper says that the banks are ready to re-invest, or roll over, up to 70 percent of the Greek sovereign debt they hold. Asked whether the report was correct, Sarkozy said "yes."

"It's a system that other countries could find useful," he said of the plan.

"The idea is that we won't let Greece fall, we will defend the euro, it's in the interest of us all," he told a news conference.

The proposed plan would have the benefit for banks of avoiding a complete rollover of their Greek debt, which is another idea that has been mooted in Brussels in recent days.

According to Le Figaro, half of banks' Greek government debt would be reinvested in new securities with a much longer maturity of 30 years. Another 20 percent would be invested in a "zero coupon" bond, the interest on which would be re-invested in high quality government bonds to provide participating banks a guarantee for their Greek investment.

That would alleviate another stumbling block to finding a Greek solution — Germany's resistance to giving private creditors a European guarantee for their loans to Greece.

A Greek default would have grave consequences on all 17 countries that use the euro and rock markets worldwide. European leaders are trying to get the private sector to take part in a new rescue package under discussion for Greece.

Germany has a greater amount of Greek government debt than France. But France has a larger total amount of Greek debt because of its exposure to Greek private banks, mainly Credit Agricole's ownership of Emporiki Bank.

The finance ministry in Germany, which has pushed hard for private creditors to contribute, said it welcomes proposals from the private sector, as in the French case.

The German government "is still in talks with financial institutes, with banks and insurers, with major private creditors, for example investment funds," ministry spokesman Martin Kreienbaum said. He did not give details.

European countries and the International Monetary Fund put together an original bailout last year for Greece. But persistently high interest rates demanded for its bonds have meant the country needs more help.

Cecile Brisson in Paris, Geir Moulson in Berlin and Victor Simpson in Rome contributed to this report.

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