NEW YORK (

TheStreet

) -- A $71 billion tax on European banks that emerged as an eleventh-hour proposal to force the private sector to shoulder some of the burden of a Greek rescue plan has been dropped in favor of other measures.

The plan, endorsed by French President Nicholas Sarkozy, was withdrawn early Thursday, according to the

Financial Times

.

Emergency talks to hammer out a Greek rescue deal are underway in Brussels this morning.

It's understood the discussions are now focused on combining a selective Greek default with private sector participation by existing bond holders. Reports suggest all owners of Greek bonds that come due in the next eight years will be urged to swap their holdings for new bonds that do not mature for another 30 years. A French-backed bond rollover plan is also believed to still be on the table, however.

Although dismissed by British Prime Minister David Cameron as a "red herring," a senior European politician had confirmed to

TheStreet

that the bank tax was on the table for serious consideration. "That is the proposal, but it remains to be seen if the Germans agree," they said, late Wednesday.

The European Commissioner with responsibility for implementing a new Basel III capital requirements directive had raised the possibility of a tobin tax - a tax on financial transactions - as one possible manifestation of the plan.

Organizations representing European banks had come out strongly against it. Michael Kemmer, managing director of Germany's banking association, said it would impose a penalty on "a sector that is only in small part a creditor of Greece

One banking analyst who covers

Deutsche Bank

(DB) - Get Report

and

Credit Suisse

(CS) - Get Report

said that while a tax would "not be good" for the share prices of Europe's banks, a solution to the debt crisis was needed. "I think they'd quite happily pay a hundred million a year or whatever it is to solve this problem and get Italian government bond yields tightening."