Best of the Week
Most Popular
1.London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - Nadeem_Walayat
2. Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - Michael_Noonan
3.Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - Nadeem_Walayat
4.Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - Jim_Willie_CB
5.Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - Keith Markey
6.Gold Prices 2014: Do What Goldman Does, Not What It Says - David Zeiler
7.Bitcoin Price Strong Appreciation to Be Followed by Declines? - Mike_McAra
8.Gold Preparing to Launch as U.S. Dollar Drops to Key Support - Jason_Hamlin
9.Doctor Doom on the Fiat Money Empire Coming Financial Crisis - Andrew_McKillop
10.The Real Purpose Of QE - It’s Not Employment - Darryl_R_Schoon
Last 72 Hrs
Stock Market Bears Wrong Again, Apple to Push Dow to New All time High - 24th Apr 14
Gold Prepared for the Attack of the Short Sellers - 24th Apr 14
Weak U.S. Housing Data Supports Euro - 24th Apr 14
Killing the Maximum-Wage Myth - 23rd Apr 14
U.S. Quarterly Economic Review - Optimism at the Fed - 23rd Apr 14
Why Mohamed El-Erian Left Pimco - Video - 23rd Apr 14
QE Is A Fraud Perpetrated By Made Men - 23rd Apr 14
Gold and Miners Outperform Once Again - 23rd Apr 14
G-20 and the US Tell the Bank of Japan to End Quantitative Easing - 23rd Apr 14
How to Get in the Trading Game and Profit - 23rd Apr 14
Fed Follies, U.S. Housing Market Fiasco - 23rd Apr 14
What Will December 31, 2014 Financial Headlines Look Like? - 23rd Apr 14
Why Gasoline Prices are Surging Again - 22nd Apr 14
Cold War 2.0 - 22nd Apr 14
The JIS – Junk Ideology Syndrome - 22nd Apr 14
How to Avoid Losing All Your Money - 22nd Apr 14
Silver Up, Stocks S&P Down - 22nd Apr 14
U.S. Mainstream Media Propaganda Setting the Stage for War With Pakistan - 22nd Apr 14
U.S. Interest Rates are NOT Rising! - 22nd Apr 14
A Crisis vs. the REAL Crisis: Keep Your Eye on the Debt Ball - 22nd Apr 14
Bitcoin Implications of Lack of Price Action - 22nd Apr 14
Japan - The Twilight Of The Rising Sun - 22nd Apr 14
Is This What a Credit Bubble Looks Like? - 22nd Apr 14
The Dark Side Of The Silver Mining Industry - 21st Apr 14
Strong U.S. Dollar Rally Could Pull Rug From Under Gold and Silver - 21st Apr 14
Silver Feeble Rally Fails to Hold Breakout, Falling Back Towards Support - 21st Apr 14
Stock Market Smart Money – All Out or More to Go? - 21st Apr 14
Fast Rising Pump Prices Counterattack - 21st Apr 14
Extreme Climate Change And Life On This Planet - 21st Apr 14
Gold and Silver Stocks Sitting Tight - 21st Apr 14
Stock Market Minor Correction Imminent - 21st Apr 14
Gold and Silver - Counting Blessings and Tender Mercies - 20th Apr 14 - Jesse
The CIA Through The Looking-Glass - 20th Apr 14 - Stephen_Merrill
Gold And Silver - Gann, Cardinal Grand Cross, A Mousetrap, And Wrong Expectations - 20th Apr 14 - Michael Noonan
Nikkei Stock Market - Sell Japan - 20th Apr 14 - WavePatternTraders

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dodging Default, French Banks Scramble to Prevent Another Global Collapse

Interest-Rates / Credit Crisis 2011 Jun 29, 2011 - 06:03 AM GMT

By: Money_Morning

Interest-Rates

Best Financial Markets Analysis ArticleKerri Shannon writes: The threat of a Greek default has become so real that French banks, which constitute some of the top Greek debt holders, have intensified their efforts to ease the country's floundering finances.

French lenders, along with their government, have suggested a debt rollover program, the first private-sector proposal to help save Greece.


The proposal suggests reinvesting 50% of maturing Greek debt into 30-year Greek government bonds between now and 2014. The new securities would pay a coupon close to current loans' interest rates, and offer a bonus for additional Greek gross domestic product (GDP) growth.

Another 20% of maturing Greek debt would be put into AAA-rated securities, like French Treasury bonds, as a "guarantee fund" for repayment on the 30-year debt holdings. This would take some of the Greek debt holdings off of banks' balance sheets.

French President Nicolas Sarkozy introduced the plan at a Paris news conference yesterday (Monday), saying French banks and insurance companies were committed to making it a reality.

The plan is a stark illustration of how dire the situation has become.

It's well understood that the European Union could be debilitated by a Greek default, but the United States has just as much at stake.

"The largely untold 'rest of the story' is this: If the European banking sector implodes, the U.S. financial system could take an unqualified beating," said Money Morning Contributing Editor Shah Gilani. "Big U.S. banks have been lending generously to banks across Europe. Close to 29% of their lending books during the past two years have gone to their heavyweight European counterparts. While they have pulled back considerably as a result of recent turmoil, U.S. banks are widely believed to have $41 billion of direct exposure to Greece."

This link between U.S. and European banks could lead to the next global credit crisis, according to Gilani.

But will the French plan work?

Dodging Default
Many analysts said it's too early to tell if the plan would be a good move for the top Greek debt holders.

"The mechanics of the French plan are so daunting that I don't see how any bank can evaluate them," Carl Weinberg, chief economist of High Frequency Economics Ltd. told Bloomberg News. "Half the debt maturing over the next three years includes paper at 98 cents on the dollar and other paper at 54 cents. Do banks have a choice? If so, they would fork over the 2013s or the 2014s and hold on to the 2012s."

About $91.3 billion (64 billion euros) of Greek government bonds will come due for repayment over the next three years. Greece needs to pass proposed austerity measures this week to receive another $17.1 billion (12 billion euros) of additional bailout funds next month and meet its bond repayment obligations.

The proposal was discussed Monday at a meeting of the International Institute of Finance, where many representatives from the French and German banking and insurance industry attended. The plan will need support from fellow Eurozone governments to move forward.

Some European governments have already demanded private investors take a bigger role in resolving the Greek debt crisis, calling for them to roll over as much as $42.8 billion (30 billion euros) in Greek debt.

Germany had pushed for private-sector involvement earlier this year, but was met with strong opposition from France and the European Central Bank. The country said it will likely discuss its own plan at a Eurozone finance ministers meeting July 3 in Brussels.

"We could see more or less a French solution," one senior German banker told The Financial Times. "But 30 years is very, very long. Whether it will be 15 years or 10 years or five will be decided by the talks which have to follow."

French banks are among the most eager to avoid a Greek collapse because they have $53 billion (37.1 billion euros) in overall net exposure to Greek private and public debt, according to the Bank for International Settlements. German banks hold more sovereign debt than the French, but two of France's biggest lending institutions, Societe Generale SA (PINK: SCGLY) and Credit Agricole SA (PINK: CRARF), also have controlling stakes in Greek banks.

Moody's Investors Service earlier this month said the three largest French banks by market value, Societe Generale, Credit Agricole SA and BNP Paribas SA will be reviewed for a downgrade because of their exposure to Greek debt.

Before any bailout proposal can be seriously considered, Greek Prime Minister George Papandreou needs approval for his $111 billion (78 billion euro) of budget cuts and asset sales. The next Greek Parliament vote will be held today (Tuesday) and then followed up Thursday with a vote on how to implement the reforms. If passed, the European Union will announce the details of a new Greek bailout package at the finance ministers' meeting July 3, likely giving Greece new funds by mid-July.

The Eurozone's future still remains unclear, even though President Sarkozy said the French proposal should unite countries in the fight to save the currency.

"Each country could find it interesting and it shows we won't let Greece go and that we will defend the euro," said President Sarkozy. "It's in all our interest."

President Sarkozy said it would be "folly" for any country to exit the euro, but billionaire investor George Soros said in Vienna Monday that the Eurozone should prepare for countries to leave the group.

"There's no arrangement for any countries leaving the euro, which in current circumstances is probably inevitable," said Soros. "We are on the verge of an economic collapse which starts, let's say, in Greece, but it could easily spread. The financial system remains extremely vulnerable."

Source :http://moneymorning.com/2011/06/28/french-banks-scramble-to-prevent-another-global-collapse/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014