Banks' support raises hopes for Greek rescue

Greece's €130bn (£108bn) financial rescue looked on safer ground yesterday as more banks came out in support of a crucial debt swap designed to slash its debt burden and avoid default.

Société Générale, France's second biggest bank, and Italy's UniCredit are backing the deal, which will see private investors swap €206bn of existing bonds for paper worth far less, taking a 70 per cent hit in the process.

The deadline for the agreement on the "voluntary" deal — also backed by Greece's six biggest banks — looms tonight. The FTSE 100 slipped nearly two per cent on Tuesday amid warnings from international bankers over a €1trn blow to Europe from a chaotic Greek default, although the blue-chip index stemmed the losses yesterday, adding 25.61 points to 5791.41.

British banks were tight-lipped over their participation in the scheme although sources at Barclays and Lloyds emphasised their "minimal" sovereign exposure. HSBC has already written down its $400m (£254m) sovereign bond holdings by more than half. State-backed Royal Bank of Scotland has slashed its Greek bond holdings by £1.1bn to £409m, a bigger hit than the proposed haircut on the table.

Greece is ideally looking for 90 per cent participation from private investors to get the deal done. But prime minister Lucas Papademos will press ahead with support above 75 per cent, using "collective action clauses" to force the deal through.

Dutch finance minister Jan Kees de Jager yesterday told the Dutch parliament: "We have seen the consequences of a US investment bank collapse in 2008, let alone what would happen if a number of banks went down in our own backyard, in southern Europe, in one or more countries because of contagion dangers, in our own monetary union. I estimate the risks to be much higher than with (Lehman Brothers) collapse."