June 29, 2011 / 7:18 PM / 8 years ago

Check French banks' Greek debt plan: Bini Smaghi

PARIS (Reuters) - France’s proposal for rolling over Greece’s debt with banks still needs to be checked to ensure it does not constitute a credit event, ECB Executive Board Member Lorenzo Bini Smaghi said in an interview published on Wednesday.

“The solution put forward by France looks like a syndicated loan which brings together several banks,” he told French newspaper Les Echos in an interview published online.

“It’s an interesting proposal, but we really need to make sure that it fits the specified framework: no credit event.”

President Nicolas Sarkozy outlined a plan on Monday under which French banks, the most exposed to the Greek debt crisis, would reinvest half of the proceeds of maturing Greek debt in new 30-year bonds paying 5.5 percent interest plus a bonus linked to Greece’s gross domestic product growth rate.

The move is intended to help pull Greece back from the brink of a default, which could derail a still fragile euro zone recovery and drag the bloc back into recession.

Speaking earlier on Wednesday, fellow European Central Bank Executive Board member Juergen Stark on Wednesday hit out at the French idea, saying it would violate Europe’s no bailout principles.

Bini Smaghi also told Les Echos that euro zone interest rates, which have been kept low to stimulate growth, would need to rise in the near future as real interest rates, stripping out inflation, remained negative while growth was above potential.

“That (situation) is hard to justify for too long,” he said.

Reporting by Vicky Buffery; Editing by James Dalgleish

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