France deal: Roll over Greek debt for 30 years

FRANCE yesterday offered a radical solution for banks to roll over holdings of Greek debt for 30 years as the Greek government fought to get backbench rebels to support a crucial austerity plan to avert bankruptcy.

With depositors fleeing Greek banks in growing numbers and financial markets watching anxiously, President Nicolas Sarkozy said French banks had reached a draft agreement with the authorities on a voluntary rollover of maturing bonds.

“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,” he said.

The plan was put to a meeting of international bankers and EU officials with the International Institute of Finance in Rome, but no decision was taken.

French sources said under an outline deal, banks would reinvest 70% of the proceeds when Greek bonds fall, due in 2011-2014, and cash out the rest.

Of the amount reinvested, 50% would go into the new 30-year bonds and 20% would go into zero-coupon AAA bonds with deferred interest.

The new bonds would be placed in a Special Purpose Vehicle, effectively removing Greek debt from the balance sheets of participating banks.

The new bonds could be guaranteed by the eurozone’s rescue fund or the European Investment Bank.

German banks voiced interest in the “French model” although Deutsche Bank chief Josef Ackermann said it was only one of several solutions being considered.

Any new financial rescue for Athens, including official lending and private sector participation, depends on the Greek parliament this week approving a five-year austerity plan and legislation to implement structural reforms and privatisations.

Greece finance minister Evangelos Venizelos met ruling socialist party rebels in Athens to push them to toe the line in parliamentary votes on tomorrow and Thursday, where a defeat could plunge the country into default.

Greece’s conservative opposition has rejected calls for national unity, forcing Prime Minister George Papandreou to rely on his slim parliamentary majority to push through a painful mix of spending cuts, tax hikes and state selloffs.

However with Greece stuck in deep recession, at least three party deputies have expressed reservations or opposition to a plan they say will crush any hope of growth for years to come.

Meanwhile, it is believed that EU officials are working on a contingency plan for Greece the austerity programme is rejected.

Many investors and economists believe that even if the austerity package is passed, it will merely delay an inevitable restructuring or default.

Major rallies are planned by protesters who have occupied Syntagma Square outside the parliament in Athens for the past month.