French banks appear to be leading the charge for a plan that could let Greece not repay all the money it owes without technically “defaulting” on its debts:
As the [Greek] finance minister, Evangelos Venizelos, desperately tried to woo dissident deputies ahead of the vote on the radical €28bn (£25bn) [austerity] package, the French President, Nicolas Sarkozy, said his country’s banks had agreed on a plan to reinvest a significant amount of their holdings in Greek debt.
By reinvesting in new securities over 30 years it is hoped the pressure on Greece to repay investors will ease. With €355bn, bondholders in France are more exposed to Greek debt than any other eurozone country. The announcement of the scheme helped dissipate fears that Greece was heading for default. The FTSE 100 rose 24.62 points to close at 5722.34, while the Dow Jones was up 92 points at 12,026 by lunchtime on Wall Street.
Basically, instead of paying the French banks the money that the Greek government owes them, the Greek government will give them some new longer-dated bonds. Then I guess what happens next is that French bank regulators need to pretend to believe that these new bonds constitute perfectly sound capital. The result would be a kind of immaculate default, or at least a very clever way of kicking the can down the road. But according to the FT, commercial banks of the sort making the forgiveness offer hold a relatively small share of Greece’s total outstanding debt. The ECB has 14 percent and says it won’t participate in a rollover. The EU and IMF have 16 percent as a result of previous interventions. And then a big 43 percent chunk is owned by miscellaneous investors including asset managers, sovereign wealth funds, and non-EU central banks.