Greece secures biggest debt cut in history
(AP) Greece has cleared a major hurdle in its race to avoid bankruptcy by persuading the vast majority of its private creditors to sign up to the biggest national debt writedown in history, paving the way for a second massive bailout.
Following weeks of intense discussions, the Greek government said Friday that 83.5 percent of private investors holding its government bonds were participating in a bond swap. Of the investors holding the €177 billion in bonds governed by Greek law, 85.8 percent joined.
"We have achieved an exceptional success ... and I believe everyone will soon realize that this is the only way to keep the country on its feet and give it a second historic chance that it needs," Finance Minister Evangelos Venizelos told Parliament.
He said he would recommend the activation of legislation known as "collective action clauses" to force bondholders who refused to sign up into the swap. The issue was to be discussed at a Cabinet meeting Friday afternoon.
"A window of opportunity is opening" with the success of the deal to reduce the country's €368 billion debt by €105 billion, or about 50 percentage points of gross domestic product, he said.
The investors will exchange their bonds with new ones worth 53.5 percent less in face value and easier repayment terms for Greece. A total of €206 billion of Greece's debt is in private hands. The swap will effectively shift the bulk of the remaining debt into public hands — mainly eurozone countries contributing to Greece's bailouts.
If the exchange had failed, Greece would have risked defaulting on its debts in two weeks, when it faced a large bond redemption. A successful bond swap is also a key condition for Greece to receive a €130 billion package of rescue loans from other eurozone countries and the International Monetary Fund.
Eurozone finance ministers said after a conference call on Friday that Greece has fulfilled the conditions to soon get approval for the bailout, most likely on Monday. The IMF has set a tentative date of March 15 to discuss the size of its participation in the bailout.
The ministers also released up to €35.5 billion in bailout money to fund the debt swap. Investors exchanging bonds will receive up to €30 billion — or 15 percent of the remaining money they are owed — as a sweetener for the deal and €5.5 billion for outstanding interest payments.
"The debt exchange represents the largest ever sovereign debt restructuring," said Charles Dallara, the managing director of the Institute of International Finance, the body that negotiated the deal with the Greek government on behalf or large investors.
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 debt, the country can gradually return to growth and eventually repay the remaining money it owes.
On the streets of Athens, many were skeptical. Panayiotis Theodoropoulos said the writedown was good "for them."
"For us? Nothing. Everyone looks out for themselves. In a while the people will be living on the streets," he said.
The debt crisis, sparked by years of overspending and waste, has left Greece relying on funds from international bailout loans since May 2010. Austerity measures including repeated salary and pension cuts and tax hikes imposed in return have led to record unemployment with more than 1 million people out of work, a fifth of the labor force.
The national statistical authority said Friday that the recession in the last quarter of 2011 was deeper than initially forecast, reaching 7.5 percent instead of 7 percent. The economy is expected to shrink for a fifth straight year in 2012, stagnate in 2013 and modestly expand in 2014.