Tornado Alley (PROG)

[fuagf]

French plan for Greek sovereign debt

Stephen Fidler and David Gauthier-Villars
From: The Wall Street Journal
June 27, 2011 9:27AM


French bank Societe Generale's central headquarters. Picture: AFP Source: The Australian

FRENCH banks have proposed a plan to reinvest half the proceeds from maturing Greek government bonds ahead of a meeting of key players, in efforts to encourage private investors to contribute to a new bailout for Greece.

The French proposal, which will feature in the discussions at a meeting tonight in Rome, is aimed at organising an orderly participation of private creditors in a resolution of Greece's debt problems. It calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. A further fifth of the proceeds would be invested in high-quality bonds as an insurance policy to guarantee repayment after 30 years.

The proposal, which emerged from a meeting on Friday of French banks, has echoes of the Brady Plan where US Treasury zero-coupon bonds were purchased to provide guarantees of repayment at maturity.

Germany and other official lenders to Greece have been insisting that if they are going to contribute more money to a new Greek bailout, they don't want large sums quickly going to pay bondholders. After weeks of wrangling, they decided that any such participation should be "voluntary".

Since that agreement, behind-the-scenes talks about how to achieve this have intensified, co-ordinated by the Institute of International Finance, a Washington-based group comprising more than 400 banks and financial institutions world-wide. Its managing director, Charles Dallara, will be at the meeting tonight. A spokesman for the IIF confirmed Mr Dallara would be present at the meeting.

Also expected to attend the meeting hosted by Intesa Sanpaolo in Rome are representatives from banks, insurance companies, officials from the Greek and other European governments, as well as the European Union and the European Central Bank.

French government officials said the plan drafted by French banks provided an "interesting solution" that was "worth exploring". European governments have said they want private creditors to roll over as much as 30 billion euros ($40.5bn) worth of Greek government bonds.

France has a particular interest in finding a solution for Greece because French banks are more exposed to Greek debt than those of any other country outside Greece. German banks hold more sovereign debt than the French, but two large French banks -- Societe Generale and Credit Agricole -- also have controlling stakes in Greek banks, meaning they are exposed via the loan books of these subsidiary banks.

A person expected to attend said the meeting would try to develop a framework for private-sector participation in the new Greek bailout, but that detailed proposals would take more time to emerge. The issue is fraught with legal and accounting complications for participating banks, depending on whether the bonds are held for trading or being held to maturity, and the likelihood that different national accounting rules could lead to diverging accounting treatments of the same decision.

Accountants and lawyers will also be represented at the meeting.

One group that won't attend the meeting is the rating firms. Yet most ways of getting a substantial private-sector contribution in the Greek bailout would trigger a default call by rating firms, raising questions about how the ECB would treat the Greek bonds that it holds as collateral against loans to euro-zone banks.

Additional reporting: Sebastian Moffett

http://www.theaustralian.com.au/business/news/french-plan-for-greek-sovereign-debt/story-e6frg90x-1226082580435

They oughta restructure drastically, even write some off .. give heaps of time to pay the rest .. or the big O ..