Deal reduces Greek debt

Greece has reached a deal that would reduce what it owes banks, pension funds, and other private investors by $142 billion. Above, an employee of the Greek Stock Exchange passes a display of trading information.
Greece has reached a deal that would reduce what it owes banks, pension funds, and other private investors by $142 billion. Above, an employee of the Greek Stock Exchange passes a display of trading information. (THANASSIS STAVRAKIS / Associated Press)
Posted: March 10, 2012

ATHENS, Greece - Greece's private creditors agreed Friday to take cents on the euro in the biggest debt write-down in history, paving the way for an enormous second bailout for the country to keep Europe's economy from being dragged further into chaos.

Greece would have risked defaulting on its debt in two weeks without the agreement. Prime Minister Lucas Papademos called the deal - which shaves some $138 billion off Greece's $487 billion debt load - an important "historic success" in a televised address to the nation Friday night. "For the first time, Greece is not adding but taking debt off the backs of its citizens."

The country said 83.5 percent of private investors holding its government debt had agreed to a bond swap, taking a cut of more than half the face value of their investments as well as accepting softer repayment terms for Greece. The swap aimed at turning around the country's economy was a key condition to secure a $172 billion rescue package from other eurozone countries and the International Monetary Fund.

The managing director of the Institute of International Finance, which negotiated the deal with Greece for large investors, called the bond swap "the largest ever" debt restructuring. "This has been painful, and the pain is not over yet. But I now can see light at the end of the tunnel for the Greek economy," Charles Dallara told Greece's Mega television.

Of the investors holding the $234 billion in bonds governed by Greek law, 85.8 percent joined. The deadline for those owning foreign-law bonds was extended to March 23. Creditors holding Greek-law bonds who refused to sign up will be forced into the deal - breaking a taboo that the eurozone had upheld until just weeks ago.

The decision to force losses on some bondholders means the debt relief will trigger payouts of so-called credit default swaps, a type of insurance on bonds. The International Swaps and Derivatives Association, the private organization that rules on such cases, said its committee ruled that a "restructuring credit event" occurred.

Fitch Ratings downgraded Greece to "restricted default" over the bond swap, which had been expected. It was the third agency to downgrade Greece into default, after Moody's and Standard & Poor's.

The finance ministers from the 17-nation eurozone said Greece had fulfilled the conditions to get approval for the bailout next week. IMF chief Christine Lagarde recommended the fund chip in $36.7 billion to the rescue package. The IMF board is set to decide on the final contribution next week.

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