Politicians and bankers are confident a French proposal for a Greek bailout can be adopted without triggering a default or a payout in credit insurance, lifting a key hurdle to a rollover of Greek debt, sources told Reuters.
Banks have received positive signals from rating agencies that they will not call a French rollover plan for Greek debt a default, three people close to German lenders said on Wednesday.
The whole charm of the French model is that it was worked out in a such way that it will be fine with the rating agencies, one of the people said.
Another source said the fact the French model was developed by banks implies the rollover will be fully voluntary -- a precondition for rating agencies not to declare a default.
It is not rocket science for a lawyer to figure out that a debt exchange won't trigger a credit event, a derivatives expert with knowledge of the talks said.
(The French plan) will be seen to comfortably not trigger the CDS, he added.
However, a senior official at Standard & Poor's on Monday said it was too soon to judge the ratings impact of the discussed debt relief package.
I can tell you only that we cannot give a judgment on something we have not even seen, Moritz Kraemer, S&P's head of European sovereign ratings, had said.
French banks, who have some of the largest holdings of Greek sovereign debt, have proposed voluntarily renewing part of the bonds when they fall due, but on different terms.
That proposal is being discussed in Germany, too, and sources close to the talks said details such as the volume of any rollover and the coupon payments of new bonds need to be finalized.
Brussels is insisting banks and insurers take part in the planned second bailout package for Greece, facing rising pressure in countries including Germany, Finland and the Netherlands to share the burden with taxpayers.
The head of German market leader Deutsche Bank , Josef Ackermann, said on Wednesday the financial industry is prepared to agree to sacrifices because a Greek default would be more dramatic than the crisis at investment bank Lehman in 2008.
The solution for Greece must avoid the collapse of the entire system, said Ackermann, while pointing out the German proposal for a voluntary rollover of Greek debt would lead to 45 percent writedowns on the bank's entire portfolio.
A senior European Central Bank policymaker rejected the idea of a Greek debt solution involving EU guarantees.
Asked about a scenario under which banks exchanged their Greek bonds for new paper backed by guarantees from EU states -- an approach that would be similar to that used in Latin America in the 1980s -- Juergen Stark told German newspaper Die Zeit: This instrument is disqualified ... It would break the ban on support -- the no bailout clause in article 125 of the EU Treaty.
(Additional Reporting by Kathrin Jones and Philipp Halstrick; Editing by David Hulmes)