PARIS (MNI) – France’s major banks, in collaboration with the
French Treasury, have drafted a proposal to reinvest 70% of their
maturing Greek sovereign bonds, and they are now attempting to convince
other European banks to go along with the idea.

European banks will meet today in Rome under the auspices of the
Institute for International Finance, a Washington, D.C.-based
international bank lobby group, to discuss the French plan as well as
other proposals for securing private creditor participation in a new
Greece bailout package, according to media reports.

According to France’s daily Le Figaro, the plan envisages banks
reinvesting 50% of their maturing Greek bonds in new Greek securities
with maturities of 30 years.

That would far surpass the 7-year maturity extension that Germany
was seeking before it softened its position, and would give Greece extra
breathing room.

Another 20% of maturing bond proceeds would be invested in
zero-coupon bonds tied to a fund containing only the highest grade debt
securities. This fund would serve as a kind of guarantee for the new
30-year Greek bonds. It would be in lieu of a guarantee from the
European Financial Stability Facility — an idea that was proposed but
is politically fraught because it adds to the taxpayer burden, which is
precisely what Germany and others want to avoid.

Le Figaro reported that the interest rate on the new Greek paper
would be equivalent to the rate charged by the public authorities in
Greece’s bailout package. In addition, there would be a variable rate
indexed to a Greek economic indicators, such as GDP.

Eurozone officials and the International Monetary Fund are in talks
with Greece for a new three-year aid package that is estimated somewhere
north of E100 billion. Germany, the Netherlands and Finland have
insisted for weeks that private sector creditors contribute to any new
bailout by agreeing to extend the maturities on their Greek bond
holdings.

After battling the European Central Bank, which strongly objected
to the idea, Germany softened its stance, saying it would accept the
ECB-sanctioned idea of a completely voluntary rollover of maturing debt.
The Eurogroup of EMU finance ministers signed off on this idea last
week, and banks began talks with their respective governments.

European officials are hoping they can ease Greece’s financing
burden by about E30 billion from voluntary rollovers alone. The rest
would come from a privatization of Greek state assets and new loans from
the EU and the IMF.

A major sticking point is how officials can count on raising E30
billion from bank rollovers without subjecting them to anything that
might be interpreted as coercion, and thus lead the major rating
agencies to downgrade Greek sovereign debt to “selective default”
status.

Another challenge is the fact that banking cultures — in
particular, the willingness of banks to follow the lead of governments
— varies from country to country. So do accounting rules, which means
that participation in such a plan might have very different financial
implications for banks from different countries.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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