Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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

© 2005-2017 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

Catching a Falling Financial Knife