Sat, Mar 10, 2012 - Page 1 News List

Greece announces a crisis averted as creditors bite bullet


Greece yesterday announced that it had managed to convince a high proportion of its private creditors to accept steep losses on their bonds, staving off an imminent default and paving the way for the release of funds from international rescue loans.

The Greek Ministry of Finance said that 85.8 percent of private investors holding Greek-law bonds had signed up to the deal and that it aimed to use legislation forcing the remaining holdouts to participate. It extended the deadline for holders of foreign-law bonds, of whom 69 percent have so far signed up, until March 23.

The deal aimed to slash the country’s national debt by 107 billion euros (US$140 billion), with private bond holders accepting a face-value loss of 53.5 percent in exchange for new bonds with more favorable repayment terms. A total of 206 billion euros out of Greece’s 368 billion euro national debt is in private hands.

If the swap had failed, Greece would have faced defaulting on its debts in two weeks, when it faces a large bond redemption.

In total, the ministry said, holders of 172 billion euros in Greek and foreign-law bonds had agreed to sign up to the deal — translating into an 83.49 percent overall participation level. By triggering legislation known as collective action clauses to force holdouts to join, they will reach a participation level of 95.7 percent, or 197 billion euros.

“The very strong and positive result provides a major opportunity now for Greece to move ahead with its economic reform program, while strengthening the eurozone’s ability to create an economic environment of stability and growth,” said Josef Ackermann, chairman of the International Institute of Finance, which had negotiated in the deal on behalf of large private creditors.

The bond swap is a radical attempt to pull Greece out of its debt spiral and put its shrinking economy back on the path to recovery. The hope is that by slashing the overall debt, the country, which is in a fifth year of recession, should be able to gradually return to growth and eventually repay the remaining money it owes.

“I wish to express my appreciation to all of our creditors who have supported our ambitious program of reform and adjustment, and who have shared the sacrifices of the Greek people in this historic endeavor,” Greek Finance Minister Evangelos Venizelos said.

The bond swap deal is an essential part of Greece’s second international bailout and the country now hopes to start receiving funds from the 130 billion euro package of rescue loans from other eurozone countries and the IMF.

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