French banks have reached an outline agreement to roll over holdings of maturing Greek bonds as part of a wider European plan to avoid sovereign default.
Nicolas Sarkozy, the French president, said in Paris on Monday that the banks would be offered 30-year Greek bonds with a coupon equivalent to the euro zone’s lending rate to Greece, plus a premium based on the financially troubled nation’s future economic growth rate.
“We concluded that by stretching out the loans over 30 years, putting [interest rates] at the level of European loans, plus a premium indexed to future Greek growth, that would be a system that each country could find attractive,” Sarkozy said.
Banking sources confirmed the agreement was part of a deal under which banks would reinvest 70 per cent of the proceeds when Greek bonds fall due. Of that amount, 50 per cent would go into the new 30-year bonds and 20 per cent would be reinvested in a zero-coupon guaranteed fund based on high-quality securities.
The news came as international bankers met euro zone policymakers in the Italian capital, Rome, to discuss how the private sector can share the burden of a second rescue programme for Greece.
Euro zone sources said EU officials were discussing the French idea with international bankers and the Institute of International Finance (IIF).
According to them, Charles Dallara, the managing director of IIF, 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.
Any new financial rescue for Athens, including official lending and private sector participation, depends on the Greek parliament approving this week a five-year austerity plan and legislation to implement structural reforms and privatisations.
A Greek minister warned on Monday of “catastrophe” if parliament blocked a 28bn-euro ($40bn) package of tax increases and spending cuts after signs of revolt by some deputies in the ruling PASOK party.
Greece’s conservative opposition has rejected EU leaders’ calls for national unity, forcing Prime Minister George Papandreou to rely on his slim parliamentary majority to push through the package.
Without approval for the measures, the European Union and International Monetary Fund say they will not disburse the fifth tranche of Greece’s 110 billion-euro bailout programme.
If the 12 billion-euro tranche is not forthcoming, the Greek government, which has been shut out of financial markets because of the ruined state of its public finances, will run out of money within weeks, probably triggering a Europe-wide crisis.