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France Promises to Help Greece with Second Bailout |
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Thursday, 09 June 2011 |
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France could back a private sector rollover of Greek debt as part of a new EU-IMF bailout if a voluntary formula can be found to avoid wider damage in euro zone markets, sources familiar with government thinking said.
Euro zone governments have edged closer to a compromise this week on a second Greek rescue program, with increased official funding, under which private creditors would be asked to swap their sovereign debt for longer-dated bonds.
President Nicolas Sarkozy softened Paris' previous total opposition to any form of debt restructuring, saying after the G8 summit in Deauville on May 27 that seeking ways for private investors to share the burden was different from restructuring.
French sources said he wanted to help German Chancellor Angela Merkel, who needs to assuage public anger over signing another cheque for Greece by demonstrating that the private sector is sharing the risk.
But France, Berlin's closest partner in EU leadership, reacted coolly to German Finance Minister Wolfgang Schaeuble's proposal of a Greek debt swap to extend maturities by 7 years and call for a "substantial contribution" from creditors.
"The French line has always been to refuse the restructuring of Greece's debt ... regardless of what terms are proposed," Budget Minister Francois Baroin said on Wednesday.
Sources in both the private and public sectors said Paris was trying to moderate Berlin's tougher line on private sector involvement ahead of a summit of European Union leaders on June 23-24 which is expected to agree a new package for Greece.
Sarkozy may fly to Germany to meet with Merkel at the end of next week, a French official source told Reuters.
The sources all spoke on condition of anonymity because of the sensitivity of the negotiations.
Officials say France is staunchly opposed to any move which would constitute a "credit event" in the eyes of investors, triggering payment of Credit Default Swaps used to insure debt and sending shockwaves through Europe's financial system.
The derivatives industry body ISDA, which has the final say on whether a credit event has occurred, has said a voluntary agreement to roll over holdings of Greek debt would typically not trigger the payment of CDSs.
However, credit ratings agencies have said they would be likely to classify a rollover as a distressed debt exchange and downgrade Greece's rating to "selective default." That could affect the European Central Bank's willingness to accept Greek debt as collateral in its liquidity operations.
"There are a number of options on a table and negotiations are not over yet," said one source in contact with the finance ministry. "A reprofiling of Greek debt would normally trigger a default, whereas a rollover would not."
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