It was announced on the 27th June, by French president Nicolas Sarkozy, that French banks had agreed to a plan to rollover a large chunk of the debt owed to them by the Greek government. Le Monde reports that this was decided upon at the weekend, with aim of bringing the French proposal to an International Institute of Finance meeting in Rome on the 27th where around 400 financial companies would be present. Without giving up on debt repayment as such, in the French plan the banks agreed to extend new loans to the Greek government as existing loans come up for repayment. These new loans would be extended over a longer time period, giving Greece more breathing room. Originating as a German idea to force private investors to share some of the burden in bailing-out Greece, France and the ECB had been firmly opposed to the idea. Now, cast as a purely voluntary affair, France has struck a deal with its big banks remarkably quickly.
Reported in the financial press as an arduous process, likely to take weeks, the French government has announced a deal within days. How was this done so quickly? Part of the answer is of course the degree of exposure of the big French banks. By some way, they are as a whole more vulnerable than banks from other European countries.
|Banks||Exposure (Billions of Euros)|
|BNP Paribas (Fr)||5|
|Société Générale (Fr)||2.9|
|Royal Bank of Scotland (UK)||1.1|
That said, these figures also show that exposure to Greek debt runs through the European banking sector. So how to explain the speed of the French plan? A hat tip to my colleague, Daniel Mügge, for the answer. The French government, whilst having divested itself of its share of the banking sector as with its share of public services in general in the course of the 1980s and 1990s, is still able to coordinate policy with the main banks. No longer a state-run economy, France nevertheless rests upon a set of remarkably close relationships between political, business and finance leaders. The French deal was brokered by a working group, with representatives of the French treasury, the ministry of finance and the secretary general of the Elysée palace, Xavier Musca. Three of the biggest French banks – Société Générale, BNP Paribas and Crédti Agricole – are reported to have made their proposal to the government but there was much pressure in the other direction too. In other countries, such as Germany, it is by no means clear that the government will be able to put a similar agreement together. This is not only because its banks are marginally less exposed than the French banks but also that the nature of the relations between government and the banking sector is different.