PARIS (Reuters) - France could return a reversal of the private sector of Greek debt as part of a new EU-IMF rescue plan, if it can find a voluntary formula to avoid more damage in the euro area markets say sources familiar with the thinking of Government.
Euro-zone Governments have edged closer to a compromise this week on a second Greek rescue program, with an increase in official financing, whereby private creditors would be called upon to share their sovereign debt obligations more updated.
President Nicolas Sarkozy softened opposition total earlier Paris to any form of restructuring, saying after the G8 Summit, in Deauville on 27 May that he was different from the restructuring of the search for ways for private investors to share the burden of debt.
French sources said that he wanted to help the German Chancellor Angela Merkel, who has need to appease public anger on the signing of another cheque for the Greece showing that the private sector is sharing the risk.
But France, partner of Berlin in the leaders of the European institutions, has quietly reacted to the proposal of the Minister of German finance Wolfgang Sch?uble of an exchange of Greek debt to extend the deadlines in 7 years and call for a "significant contribution" from creditors.
"The French line has always been to deny the restructuring of the debt of the Greece... regardless of what conditions are proposed," Budget Minister Fran?ois Baroin said Wednesday.
In private and public sector, sources said that Paris was trying to temper the line more lasts from Berlin on the participation of the private sector, a Summit of the leaders of the European Union of 23-24 June, which should accept a new package for the Greece.
Sarkozy can fly in Germany to meet Angela Merkel at the end of next week, a French official source told Reuters.
The sources all spoke on condition of anonymity because of the sensitivity of negotiations.
Officials say that France is resolutely opposed to any move that would constitute a "credit event" in the eyes of investors, triggering payment of Credit Default Swaps used to ensure debt and sending shock waves through the financial system of Europe.
The body of the ISDA derivatives industry, who has the last word or a credit event has occurred, said a voluntary agreement to roll over Greek debt holdings would not usually trigger payment of SADC.
However, credit rating agencies said that they would be likely to classify a turnaround as an exchange of debt distress and downgrade selective rating of the Greece 'default '. Which could affect the European Central Bank's willingness to accept debt Greek as collateral in its liquidity operations.
"There are a number of options on a table and negotiations are not over yet, said a source in contact with the Ministry of finance." A Greek debt rescheduling normally trigger a default value, then that would not be a rollover. ?
NOT QUITE VOLUNTARY
The French are determined to avoid any action which could damage not only creditors of Greece, its financial sector and the economy, but also have an impact on the solvency of the Ireland and the Portugal and other euro-zone countries under stress.
As an alternative to an exchange of debt, French sources said that banks could be persuaded to enter into a voluntary agreement to refinance their Greek debt as it comes of age. However, this would mean official creditors pay more the second rescue plan.
After the Germans, the French banks are second largest foreign holders of Greek debt. BIS figures published this week showed that at the end of 2010, German banks 23 billion euros in Greek bonds and the French banks 15 billion euros.
The ECB President, Jean-Claude Trichet, former Director of the Council of the French Treasury, appeared to open the door to a reversal earlier this week by saying that he would accept a regime in which banks were invited to voluntarily maintain their level of exposure to the Greece.
But he restricted any such scope Thursday by saying that the ECB wanted to avoid "any event credit and selective default."
To encourage banks to buy the new bonds more long term, the ECB could accept as guarantee, while the former ones could gradually cease to be accepted.
"The is can we try to convince the agencies rating and the agreement to avoid triggering a credit event, the packaging", said the source in contact with the Ministry of finance.
Bart Oosterveld, head of sovereign risk of Moody group, said on a trip to Paris this week that it is difficult to see how such an agreement would be truly voluntary, given the vagaries of 340 billion euros from the Greek debt. If there was a suggestion of coercion probably would cause a failure, he said.
Jean-Paul Chifflet, CEO of heavyweight French bank Credit Agricole, among the most exposed in Europe in the Greece, said on Wednesday, he was reportedly favour an extension of the deadlines of the sovereign debt of the Greece.
Another senior banker, speaking on condition of anonymity, said French banks had already given the Government committed last year, when the first Greek bailout, to maintain their exposure to the Greece.
"We have been invited to a meeting with Christine Lagarde and it very clearly that it was expecting the French banks after the Government had to support them in these critical times in 2008-2009, to play the game on the Greece" said.
"It was not voluntary," he said, adding that German banks had made a similar commitment.
(Reported by Paul Taylor, Yann Le Guernigou and Emmanuel Jarry; additional editing by Paul Taylor)
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