June 27, 2011
Efforts to get private investors to provide help to a new bailout for Greece intensified, as French banks proposed a plan to reinvest half the proceeds from maturing Greek government bonds and key players prepared for a meeting in Rome on Monday aimed at discouraging bondholders from rushing for the exits.
The French proposal, which will feature in the Rome discussions, is the first to come from the private sector as a response to demands that private creditors play a role in resolving Greece's debt problems.
It suggests, for the first time, that private creditors may be ready to contribute significant sums to Greece's financing needs—but it doesn't answer the looming question of whether the price of doing so would be a default on some Greek government bonds.
Rating firms are likely to declare a default if they view investors as being encouraged to take a deal that hurts their interests, even if they are ostensibly doing it voluntarily. The European Central Bank has warned it will turn down Greek debt as collateral for ECB loans in the event of any default, an action that could lead to a collapse of Greece's banking system.
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