French banks 'will help Greece'

French President Nicolas Sarkozy says his country's banks would help Greece by giving it 30 years to repay.

France's Figaro newspaper said banks are ready to relend - or roll over - 70% of loans they hold.

The plan is being worked out by the French government and bankers.

Greece, which has not yet exhausted all its first 110bn-euro (£98bn, $158bn) bail-out, is already standing by for further rescue loans expected to be up to 120bn 

“We’ve been working on this with the banks and insurance companies,” Mr. Sarkozy said at a news conference in Paris. “We’re committed to going from a principal — the voluntary participation of the private sector — to concrete reality.”

“If it wasn’t voluntary, it would be viewed as a default, with a huge risk of an amplification of the crisis,” he added.

However, the German government and others have been pressing for banks and other private-sector lenders to Greece to be involved this time round.

German banks are reported to be very interested in the French model being discussed.

A group of international bankers are currently meeting eurozone officials in Rome to discuss the crisis.

The matter is fraught because credit rating agencies, who determine the credit-worthiness of borrowers, have already said they will view any roll-over of loans by banks as a technical default, something that is tantamount to bankruptcy.

The head of the eurozone's rescue fund, Klaus Regling, is talking to the ratings agencies to explore ways to avoid a default rating.

European policymakers - notably the European Central Bank - are also concerned that the move could force Europan banks to recognise billions of euros in losses on Greek debts they currently hold, and could also trigger payouts on credit derivative contracts.

Gilles Moec, an economist at Deutsche Bank, said there would be “quite a few hurdles” for the French plan.

Apart from requiring backing from Germany and other European countries, he said that the Union’s structures created to bail out struggling economies would need to be altered to create the “guarantee mechanism” and that could necessitate Union-wide and national ratifications.

“This does not protect against a political meltdown in Greece this week if the government can’t manage to get its austerity plan endorsed by Parliament,” he added.

A vote on the Greece’s latest austerity measures is scheduled for Tuesday, to be followed by another vote Thursday on separate legislation to implement the reforms.

If the measures are passed, the European Union is expected to announce the size and details of a new, second bailout package at the meeting of ministers July 3.

And assuming that the International monetary Fund approves its own review of Greek measures, Athens should then be able to receive new funds by mid-July.

“If this process is derailed and Greece is pushed into a disorderly default, the spillover effects could be global and may not be contained only in Greece and the rest of Europe.” economists at Bank of America Merrill Lynch said in a research note Friday

The Greek government has already survived a confidence vote, on June 21, related to its handling of the crisis.