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French banks agree to rolling over 70% of Greek debt. This includes the banking giant BNP Paribas. France has the biggest exposure to Greek debt. This “voluntary” action paves the way for a significant private sector “contribution” in the new Greek bailout plan, after the German banks also agreed.The big question is the triggering of CDS. EUR/USD begins the week on a weak note.

Updates:

  • EUR/USD slides below 1.4120.The move still needs to be confirmed. It is at 1.415 at the moment.
  • GBP/USD fell to 5 month low, now at 1.5920. These levels were last seen at the end of January.
  • A meeting will be held in Rome to discuss the participation of the private sector.
  • The votes in the Greek parliament on the austerity package were postponed from Tuesday and Wednesday to Wednesday and Thursday.

According to the French press, France’s biggest banks are ready to restructure the Greek debt. Here are some details:

Fifty percent of the redemptions would go into 30-year Greek securities, with the remaining 20 percent invested in a fund made of “very-high quality” securities that would back the 30-year bonds, that person said. The proposal may be altered, he said. All three people spoke on condition of anonymity because the talks are ongoing and private.

The French rejected the option of restructuring, and it even seemed that Germany retreated from its will to impose such moves on creditors. They both agreed on “voluntary” participation of the private sector. Well, after the German banks already volunteered, now the French join them.

They all understand that if they don’t allow for some orderly losses now, they may find themselves with an  disorderly default quite soon. So, they have no choice but to “volunteer”. Also PIMCO’s El-Arian thinks that Greek restructuring is inevitable. He is not alone.

Also the Belgian Dexia bank has agreed to participate and also Spanish banks were discussing this, although their exposure is small. This issue also reached a non-euro member of the European Union: the United Kingdom.

The British government put pressure on the British banks to also provide aid. British banks can absorb their direct exposure to Greek debt. The big problem is with Credit Default Swaps: CDS.

It is unclear how many of these insurance notes were sold, who sold them and who bought them. In addition, in case of such a “voluntary” restructuring, it is unclear whether they will be triggered or not – a  lose lose situation.

EUR/USD already started the week lower, now trading at 1.4144, above support at 1.4120. GBP/USD is at 1.5950, hanging above the support line of 1.5936 – very close to it. A fall lower will be a 5 month low.

Further reading: Spanish hidden debt.

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