France offered a radical solution on Monday for banks to roll over holdings of Greek debt for 30 years as the Greek government fought to get backbench rebels to support a crucial austerity plan to avert bankruptcy.

With depositors fleeing Greek banks in growing numbers and financial markets watching anxiously, President Nicolas Sarkozy told a news conference in Paris that French banks had reached a draft agreement with the authorities on a voluntary rollover of maturing bonds.

We concluded that by stretching out the loans over 30 years, putting (interest rates) at the level of European loans, plus a premium indexed to future Greek growth, that would be a system that each country could find attractive, he said.

The plan was put to a meeting of international bankers and European Union officials with the International Institute of Finance (IIF) in Rome on Monday but no decision was taken, an Italian Treasury official said.

In a sign of ebbing confidence that Greece can avoid default on its 340 billion euro debt mountain, Moody's said Greek banks had lost about 8 percent of private sector deposits so far this year as customers burned their savings due to unemployment, transferred funds abroad or bought gold.

French government sources said under an outline deal, banks would reinvest 70 percent of the proceeds when Greek bonds fall due in 2011-14 and cash out the rest. Of the amount reinvested, 50 percent would go into the new 30-year bonds and 20 percent would go into zero-coupon AAA bonds with deferred interest.

The new bonds would be placed in a Special Purpose Vehicle, effectively removing Greek debt from the balance sheets of participating banks, the source said. Banks would hold equity in the SPV instead.

Private banking sources said the new bonds could be guaranteed by the euro zone's rescue fund (EFSF) or the European Investment Bank.

A French government source described the solution, proposed by French bankers, as a sort of private Brady bond without a public guarantee, referring to a 1989 swap of Latin American debt for tradeable securities, some of them guaranteed, proposed by then U.S. Treasury Secretary Nicholas Brady.

German banks voiced interest in the French model although Deutsche Bank chief Josef Ackermann said it was only one of several solutions being considered and it was unclear whether any satisfactory proposal could be found.

Political leaders expect a solution by the end of the week but we should not rush it, Ackermann told Reuters Television in an interview. It is important to have a good solution. The issues are complex and need to be discussed.

Any new financial rescue for Athens, including official lending and private sector participation, depends on the Greek parliament approving this week a five-year austerity plan and legislation to implement structural reforms and privatizations.

REBELS PRESSED

Greek Finance Minister Evangelos Venizelos met ruling socialist party (PASOK) rebels in Athens to push them to toe the line in parliamentary votes on Wednesday and Thursday, where a defeat could plunge the country into default.

Greece's conservative opposition has rejected calls for national unity, forcing Prime Minister George Papandreou to rely on his slim parliamentary majority to push through a painful mix of spending cuts, tax hikes and state selloffs.

However with Greece stuck in deep recession, at least three PASOK deputies have expressed serious reservations or outright opposition to a plan they say will crush any hope of growth for years to come and it is unclear how the numbers will play out.

Speaking at the start of the marathon parliamentary debate on Monday, Venizelos acknowledged the plan was painful but said it would win time to negotiate more favorable terms later, an attitude which risks irritating some euro zone partners.

The strategy is to vote on the two pieces of legislation, to be able to face the euro zone and the IMF to obtain the fifth tranche, and until the end of the summer we seriously negotiate a new loan program, he said. That's your renegotiation.

Without parliamentary approval for the measures, which have caused a wave of strikes and demonstrations, the European Union and International Monetary Fund say they will not release the fifth tranche of the 110 billion-euro bailout agreed last year.

If the 12 billion-euro tranche is not forthcoming, the Greek government, which has been shut out of financial markets because of the ruined state of its public finances, will run out of money within weeks, probably triggering a Europe-wide crisis.

If it is Greece alone, that's already big, Ackermann said. But if other countries are drawn in through contagion, it could be bigger than Lehman, he said, referring to the disastrous 2008 collapse of Wall Street investment bank Lehman Bros.

Three euro zone sources in Brussels said EU officials were working on a contingency plan for Greece if its parliament rejects an austerity program and the country cannot receive the next installment of EU/IMF emergency loans.

The fallback plan, distinct from the French rollover ideas, involves ways to ensure Greece gets the liquidity needed to avoid default if the next aid tranche cannot be paid out by mid-July, the sources said.

PREPARATIONS

An initial vote on the framework austerity package is due on Wednesday, and lawmakers then voting on Thursday on a separate bill containing specific steps to implement it.

Defections over the past 13 months have cut Papandreou's support in the 300-member parliament to 155 seats, meaning a handful of votes could decide the issue, which may be further complicated if one bill passes and the other does not.

In an interview with Spanish daily El Mundo on Sunday, Deputy Prime Minister Theodore Pangalos said he believed the first vote would pass but he was less confident about the second implementation bill.

That's where we may have problems, he said. I don't know whether some of our legislators will vote against it.

Venizelos was due to meet wavering deputies throughout Monday in a last-ditch bid to ensure the votes pass after German ministers warned that Europe had to make plans for the event of a defeat which would block the next tranche of aid.

(Rejection) isn't Plan A, or the most likely outcome but the euro zone and its financial sectors need to make preparations, Deputy Finance Minister Joerg Asmussen told a conference on Monday.

Progress in the rollover talks cooled demand for safe-haven bonds on Monday but the premium investors demand to hold Greek debt rather than benchmark German Bunds widened by a further 20 basis points to 1,432 basis points.

BAILOUT INSUFFICIENT

With the current 110 billion bailout insufficient to keep Greece going, European leaders are working on a further package of a similar size including a contribution from private banks which would agree to a voluntary rollover of their Greek debt.

Whether such a deal will be enough to stave off problems in the longer term remains uncertain. Many investors and economists believe that even if the austerity package is passed this week, it will merely delay an inevitable restructuring or default.

With the fate of both the existing aid plan and the new package dependent on this week's vote, major rallies are planned by the protesters who have been occupying Syntagma Square outside the Greek parliament in Athens for the past month.

Public anger at the political class has been fueled by Greece's worst recession since the 1970s, a youth unemployment rate of more than 40 percent and public finances that have been shattered by a debt equivalent to some 150 percent of gross domestic product.

The powerful public sector union ADEDY and its private sector equivalent GSEE are due to hold a 48-hour strike on June 28 and 29, that will hit public transport, telecoms, the post office and many hospitals.

Many companies, including the main electricity group PPC which is slated for partial privatization next year, have already started rolling stoppages.

On Monday, protesters hung a huge banner off the Acropolis, the ancient rock outcrop which dominates Athens, proclaiming: People have the power, they never surrender.

(Additional reporting by Stephen Slater in London, Luke Baker and Julien Toyer in Brussels, Nick Vinocur in Paris, Harry Papachristou and Renee Maltezou in Athens, Stefano Bernabei and Gavin Jones in Rome; Writing by James Mackenzie and Paul Taylor, editing by Paul Taylor/Janet McBride)