French banks agree Greek debt deal, blueprint for others
French banks, among the most exposed to the Greek debt crisis, have reached an outline agreement to roll over holdings of maturing Greek bonds, part of a wider European plan to avoid sovereign default.
Immediately after French President Nicolas Sarkozy announced the breakthrough, German bankers voiced their interest in the French model. The news came as international bankers met euro zone policymakers in Rome to discuss how the private sector can share the burden of a second rescue program for Greece.
Sarkozy told a Paris news conference that French banks would be offered 30-year Greek bonds with a coupon equivalent to the euro zone's lending rate to Athens, plus a premium based on Greece's future economic growth rate.
European Union leaders agreed last week that extra public financing to help Greece avoid bankruptcy would depend on the voluntary involvement of private sector bondholders in a way that did not cause a credit event and that credit ratings agencies did not brand as a selective default.
An Italian Treasury source said the Managing Director of the Institute of International Finance (IIF), Charles Dallara, met Vittorio Grilli, Director General at Italy's Treasury and chairman of the euro zone's Economic and Financial Committee (EFC) to discuss Greece's struggle to avoid default.
The source said Grilli was acting in his EFC capacity.
A participant at the talks said at least 20 international bankers first met at the offices of Intesa Sanpaolo before being taken by VIP minibuses to the Treasury for talks with Grilli. European Commission officials were also attending the meeting with Grilli, an Italian Treasury spokesman said.
A Reuters reporter saw representatives from foreign banks including Barclays at the meeting.
Mr Dallara is participating alongside others from the public and the private sectors in meetings in Rome, an IIF spokesman said.
He said Dallara had been meeting with a range of public officials and private creditor institutions in recent days to provide informal support to help a Greek bailout.
Last week, Dallara was in Athens to discuss the debt crisis. The Greek parliament is due to hold crucial votes on Wednesday and Thursday on a new five-year austerity plan and legislation to implement structural reforms and privatizations vital for the EU and IMF to continue funding for Greece.
DECENTRALIZED
EU sources said that the talks with creditor banks were deliberately decentralized to avoid any suspicion of Europe-wide coercion.
However, Grilli was coordinating the negotiations to produce a ballpark rollover figure for euro zone finance ministers, who meet on July 3 and July 11, while the head of the euro zone's rescue fund, Klaus Regling, was talking to the ratings agencies to explore ways to avoid a default rating.
A French banking source said on Sunday the French Treasury had reached a deal with banks to make a rollover more palatable to creditors, who would reinvest 70 percent of maturing debt in the 30-year Greek bonds, of which 20 percent would go into a zero-coupon guaranteed bond based on high-growth stocks.
A German banking source said a call was planned on Monday between banks and the German finance ministry to discuss their contribution to a Greek bailout.
The meeting would discuss whether the French scheme could be used as a blueprint for German banks, the source said.
The French suggestion would be a possible compromise, which on the one hand underscores the voluntariness of a maturity prolongation and should prevent triggering a credit event, while on the other hand also granting reasonable incentives so private creditors can accept it, another source close to German banks said.
It is a very interesting model. [ID:nWEB7286]
Germany's Private Banking Association said talks with the German government on burden-sharing in the Greek crisis were proceeding constructively.
While they were still hoping for further incentives to encourage their participation, private banks would do their bit, Michael Kemmer, managing director of the German Private Banking Association (BdB) told Reuters.
(Additional reporting by Emmanuel Jarry in Paris, Catherine Hornby and Giselda Vagnoni in Rome, Steve Slater in London, Gernot Heller in Berlin and Kathrin Jones in Frankfurt; Writing by Barry Moody and Paul Taylor, editing by Janet McBride)
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