Greece's fate in balance as banks mull rescue plan

Hopes that Greece can avoid a default were on a knife-edge last night as international banks decide whether to sign up to a debt restructuring plan for around €206 billion (£172 billion) of bonds by a Thursday evening deadline.

The Institute for International Finance, a Washington-based alliance of 450 of the world's leading banks, is backing the deal, which would see Greece's borrowings cut by about €106 billion.

"These are important steps towards resolving the Greek debt crisis," said the IIF after a board meeting in Zurich, Switzerland yesterday. Managing director Charles Dallara told Greek TV he was "quite optimistic that the participation levels will be quite high".

But the group warned: "The decision to participate in the debt exchange lies exclusively with individual investors".

Under the terms of the deal, investors will write off 53.5 per cent of their loans and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility.

Greece needs 75% participation or else it could have to invoke Collective Action Clauses to force through a restructuring. Some experts warn this could constitute a "credit event" akin to a default as it could trigger insurance payouts.