French banks have agreed to roll over holdings of Greek debt for 30 years, President Nicolas Sarkozy said on Monday, as the Greek government fought to persuade backbench rebels to back a crucial austerity plan to avert bankruptcy.

With financial markets watching the Greek crisis anxiously, Sarkozy told a news conference in Paris that the French authorities had reached an agreement with the banks 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.

Banking sources confirmed that was part of an outline deal under which banks would reinvest 70 percent of the proceeds when Greek bonds fall due. Of that amount, 50 percent would go into the new 30-year bonds and 20 percent would be reinvested in a zero-coupon guaranteed fund based on high-quality securities.

European Union officials were discussing the French idea with international bankers and the Institute of International Finance (IIF) in Rome on Monday, euro zone sources said, and German banks voiced interest in the French model.

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.

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.

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.


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.

In a sign of growing nervousness on financial markets, the premium investors demand to hold Greek debt rather than benchmark German bonds widened by 20 basis points on Monday to 1,432 basis points.

The debate in parliament is due to begin on Monday evening with an initial vote on the framework austerity package 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.


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 protestors who have been occupying Syntagma Square outside the Greek parliament in Athens for the past month.

Public anger 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, protestors hung a huge banner off the Acropolis, the ancient rock outcrop which dominates Athens, proclaiming: People have the power, they never surrender.

(Writing by James Mackenzie, editing by Paul Taylor)