EU officials and bankers to discuss ways of resolving Greece's financial crisis including proposal for debt write off
Talks aimed at resolving Greece's debt crisis will take place this week, as protests continue to take place over planned austerity measures. Photograph: Yiorgos Karahalis/Reuters
European Union officials and bankers from across the region are meeting in Italy to discuss ways of resolving the Greek debt crisis, as the Athens parliament prepares to debate its austerity package before a critical vote later this week.
The talks will take place in Rome on Monday evening and will examine whether private creditors could agree to roll over some Greek debt. Top of the agenda will be a proposal from the French banking industry, under which borrowers would effectively write off a third of their debts.
The meeting is organised by the Institute of International Finance and comes at the start of a crunch week for Greece, and the wider eurozone. If the Athens parliament opposes the austerity bill, then Greece would probably be denied the €12bn (£10.6bn) slice of financial aid due next month, which could force it to default and trigger calamity across the financial markets. Defeat may also scupper the second bailout package ,which was agreed in principle last week.
The vote on the package of spending cuts, tax rises and asset sales is due on Wednesday. It is likely to be close, given prime minister George Papandreou's shrivelling majority in parliament. A second vote, on an enabling bill to speed up the pace of reform, is expected on Thursday.
The measures remain deeply unpopular in Greece, with demonstrators storming the Acropolis on Monday morning. They hung a banner declaring: "People have the power, they never surrender."
Events in Greece continue to dominate the financial markets, where traders are dogged by fears that the debt crisis could flare up across the region again. The spread between the interest rates on ultra-safe German bonds and their Italian equivalent reached a record high on Monday morning, and the spread with Greek bonds also widened. Stock markets were edgy, while the euro fell against the dollar and hit a new low against the Swiss franc.
"There are ongoing worries that failure to resolve the situation in Greece has the potential to see fallout on a global scale," said Cameron Peacock, market analyst at IG Markets. "It'll be no surprise if we find that the appetite for risk simply isn't there among traders."
The French bank plan
France's banking sector is one of the biggest creditors to Greece, holding about €9bn of debts according to recent data. This makes it particularly vulnerable to the crisis that has been developing over recent weeks.
Under the French banks' proposal, private creditors whose Greek debts mature would agree to invest half the sum back with Greece, by buying new, long-dated bonds with maturities up to 30 years. An additional 20% of the maturing debt would be reinvested in high-quality bonds through a special fund, structured to guarantee repayment.
The plan could appeal to European leaders who are taking a hard line against private creditors, as their maturing debts would not immediately be paid off in full. It could also find favour with banks who are unwilling to simply swap all their bonds for new securities.
However, the credit rating agencies could still choose to view the plan as a technical default, triggering a "credit event".
Gary Jenkins, head of fixed income research at Evolution Securities, compared the French proposal to the Brady Plan: used during the Latin America debt crisis of the 1980s. It saw banks agree to swap their loans for bonds that would reduce the debt burdens of countries including Argentina, Brazil, and Mexico.
"If widely accepted, this should satisfy Germany's previous call for substantial private sector involvement," said Jenkins.
From guardian.co.ukType the text here