MercoPress. South Atlantic News Agency

French banks agree to roll over holdings of Greek debt for 30 years

President Nicholas Sarkozy made the announcement which also interests German banks

French banks have agreed to roll over holdings of Greek debt for 30 years, President Nicolas Sarkozy said on Monday, as the Greek government tries to persuade backbench rebels to back a crucial austerity plan to avert bankruptcy.

The debate in parliament is due to begin with an initial vote on the framework austerity package on Wednesday, and lawmakers then voting on Thursday on a separate bill containing specific steps to implement it.

With financial markets watching the Greek crisis anxiously, Sarkozy told a news conference in Paris that the French authorities had reached an agreement with the banks on a voluntary rollover of maturing bonds.

”We concluded that by stretching out the loans over 30 years, putting (interest rates) at the level of European loans, plus a premium indexed to future Greek growth, that would be a system that each country could find attractive,” he said.

Banking sources confirmed that was part of an outline deal under which banks would reinvest 70% of the proceeds when Greek bonds fall due. Of that amount, 50% would go into the new 30-year bonds and 20% would be reinvested in a zero-coupon guaranteed fund based on high-quality securities.

European Union officials were discussing the French idea with international bankers and the Institute of International Finance (IIF) in Rome, Euro zone sources said, and German banks voiced interest in the “French model”.

Any new financial rescue for Athens, including official lending and private sector participation, depends on the Greek parliament approving this week a five-year austerity plan and legislation to implement structural reforms and privatizations.

Greek Finance Minister Evangelos Venizelos met ruling socialist party (PASOK) rebels in Athens to push them to toe the line in parliamentary votes on Wednesday and Thursday, where a defeat could plunge the country into default.

Greece's conservative opposition has rejected calls for national unity, forcing Prime Minister George Papandreou to rely on his slim parliamentary majority to push through a painful mix of spending cuts, tax hikes and state sell offs.

Without parliamentary approval for the measures, which have caused a wave of strikes and demonstrations, the European Union and International Monetary Fund say they will not release the fifth tranche of the 110 billion-Euro bailout agreed last year.

If the 12 billion-euro tranche is not forthcoming, the Greek government, which has been shut out of financial markets because of the ruined state of its public finances, will run out of money within weeks, probably triggering a Europe-wide crisis.