Greek Creditors Close to Agreement

French and German banks weigh rolling over 70% of bond holdings in second rescue.

Greek creditors are headed toward an agreement to roll over 70 percent of their holdings of that nation’s bonds into longer maturity debt in an effort to prevent default and answer politicians’ calls that they contribute to the country’s second rescue in two years.

“We’ve been working on this,” and hope other countries will join the proposal, French President Nicolas Sarkozy said today at a press conference in Paris. Germany’s biggest banks and insurers are weighing the French proposal, a person familiar with the matter said today. 

German and French lenders are the biggest European holders of Greek debt and their participation in the plan is key to EU leaders’ goals of getting European banks to roll over at least 30 billion euros ($43 billion) of bonds. The rollover is part of a broader aid package being prepared by the EU to help prevent the euro-region’s first default a year after Greece was given a 110 billion-euro bailout that failed to stop the region’s debt crisis.

Germany and France’s endorsement of the 70 percent participation target came after talks last week with German, Dutch, Belgian and French banks on the roll over.

Negotiations shifted today to Rome where Director General of the Treasury Vittorio Grilli hosted representatives of some of the world’s biggest banks. Grilli is chairing the meeting in his capacity as the head of the European Union’s Economic and Finance Committee, which helps prepare policy for European finance ministers. He is in discussion with a group of bank executives and Charles Dallara, managing director of the Institute of International Finance, which represents more than 400 of the worlds’ biggest lenders.

Sarkozy insisted that any participation by banks had to be voluntary. Credit rating companies have threatened to rule Greece in default if banks are coerced into rolling over a debt, a move that would devastate the country’s banking system and possibly drag down other high-debt nations such as Portugal, Ireland and Spain. 

“If it wasn’t voluntary, it would be viewed as a default, with huge risks of catastrophic results,” Sarkozy said.

 

Bloomberg News

 

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