European leaders moved closer Monday to a deal that could avoid a potentially catastrophic default by Greece in billions of dollars in debt, as France proposed a plan that could serve as a model for other European lenders in the nation reeling, where a general strike and widespread demonstrations were scheduled Tuesday before a crucial vote of austerity.
With pressure mounting from investors before the vote by the Greek Parliament this week, President Nicolas Sarkozy made a proposal under which banks would give Athens French more time to pay the loan when due in the next three years .
Banks that share a part of the cost of bailing out the granting of new loans to Athens in the form of loan maturity, but banks would not have to forgive the debt itself, a concern of many investors.
"We've been working on this with banks and insurance companies," Sarkozy told a news conference in Paris. "We are committed to go first - the voluntary participation of the private sector - to the concrete reality." Sarkozy said he hoped other European countries adopt a similar plan.
It comes at a critical time in the long-running drama about how to prevent a default on $ 467 billion debt of Greece.
A vote in the last austerity package Greece $ 40 billion is scheduled for Wednesday, with another vote scheduled for Thursday on legislation to carry out specific reforms. If the measures pass, the European Union is expected to announce the size and details of a new package, rescue seconds at a meeting of ministers on Sunday.
If the Greek Parliament were to vote the package down a chain reaction could engulf the global financial institutions.
Investor confidence in the debt of countries in the periphery of Europe such as Greece and Portugal and Ireland, has been eroding fast. European financial institutions have more than half a billion dollars of sovereign debt. Private borrowers in these countries would also be hit by a public default should European banks another trillion, according to the Bank for International Settlements.
French banks' willingness to highlight how vulnerable chip giants like Societe Generale and BNP Paribas could be in default of full scale, against a threat too large institutions in Germany, Belgium and other countries. It is also why the European leaders have the leverage to extract concessions from banks as part of a comprehensive rescue package for Greece.
European leaders cannot reach a concrete plan so far and the Greek political balking at calls for austerity, the outlook for European banks has been increasingly blurred in the week. "Investors think policy makers are kicking the can down the road," said Philip Finch, an analyst at UBS in London.
As a result of European banking shares have fallen nearly 25 percent in the last four months, helping to reduce the actions of their U.S. counterparts, who have lost 13 percent during the same period.
But unlike U.S. banks, which increased the capital and wrote tens of billions of dollars in bad loans after the financial crisis, the European institutions have been much slower to recognize the problems they face, analysts and investors he said. Even without a sovereign debt default, Mr. Finch said European banks need to raise $ 150 billion in capital to strengthen their balance sheets.
French officials said the proposal announced Monday was the result of the recent meetings between the Elysee Palace, the French Treasury, the Bank of France and the French banking federation.
The initiative can be supported by Jean-Claude Trichet, the outgoing president of the ECB, who have opposed plans to impose automatically the losses in the value of the Greek debt.
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