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France : French banks to participate in new Greece bailout

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French banks and insurance companies will  participate in a new Greek financial rescue programme “on a voluntary basis”,  French President Nicolas Sarkozy said Friday.

“The answer is yes, but it’s not only the banks but insurance companies and  that was part of negotiations engaged with Angela Merkel,” Sarkozy said at a  Brussels press conference responding to a reporter’s question.

“We’ve had a lot of meetings with French banks and insurance companies. And  I can tell you that we know of meetings taking place in eurozone countries  with equivalent organisations and I can tell you there is no problem and  nothing to fear,” he said.

“On how this is done, we’ll communicate at the right moment, but there is a  willingness to save the euro, to maintain solidarity in the eurozone, which is  extremely strong,” the president said.

There has been a major push to have holders of Greek debt to participate in  a second bailout of Greece that is currently being negotiated, which would  potentially give the country a breathing space of several years worth tens of  billions of euros.

France is the country most exposed to Greek sovereign debt, mostly held by  private institutions.

In the banking sector, BNP Paribas holds five billion euros in Greek debt,  Societe Generale holds 2.5 billion euros and Credit Agricole holds 600 million  euros.

Insurance group AXA is exposed to 300 million euros and CNP Assurances 127  million euros.

How that participation of bond holders is structured in the bailout is  essential as it risks causing a determination of a credit event and a default  rating by ratings agencies.

That would roil the markets and the ECB has said it would no longer be able  to accept Greek bonds as collateral on loans, which would cut Greek banks off  from the credit that has kept them operating.

ECB chief economist Juergen Stark warned that including the private sector  in the Greek rescue package injects added risk to an already volatile  situation.     “The involvement of private creditors (…) could lead to a risky situation  if things are not clarified soon,” Jurgen Stark told the Allgemeine Zeitung in  an interview to appear Saturday.

Stark said he understood the desire of European governments to involve the  private sector in a new rescue plan, but “the question is if it is  economically suitable and necessary.”

He warned that if there were a change in the terms of the debt in a  rollover of Greece’s debt that credit agencies would call it a credit event  and a default.    Such a scenario “would be a new dramatic phase in the crisis, with very  negative consequences that would be dreadful for the Greek banking system, for  the economy and also for other countries.”

Brusells, June 24, 2011 (AFP)