Euro Crisis: Greece Avoids Immediate Default With Bond Success

Greece took a critical step toward staving off an imminent bankruptcy after securing the support of the vast majority of its bondholders in a crucial bond swap that should pave the way for its second massive international bailout.

Greece averted the immediate risk of an uncontrolled default, winning strong acceptance from its private creditors for a bond swap deal which will ease its massive public debt and clear the way for a new international bailout. Photo: Dimitris Papazimouris/Flickr

Athens officials last night estimated more than 85pc of private creditors had accepted the €206bn (£173bn) bond swap shortly after a deadline expired yesterday evening, reports The Telegraph.

That is enough for the deal to go through, but leaves the possibility the government might have to use its controversial Collective Action Clauses (CACs).

The result should clear the way for the European Union and International Monetary Fund to release a 130 billion euro ($172 billion) bailout package agreed with Greece last month.

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

Getting the bond swap through is a key condition for Greece to get its hands on a €130 billion ($172 billion) package of rescue loans from other eurozone countries and the International Monetary Fund, tells The Huff Post.

Government spokesman Pantelis Kapsis said the result was a “vote of confidence” in Athens’ ability to carry out deep structural reforms to its stricken economy. “I think it’s a historic moment,” he told private television station Antenna.

The deal, in which creditors swapped their bonds for new ones worth a quarter of the value, is designed to wipe out more than €100bn of Greek government debt by 2020.

Its completion is also a key condition of Greece’s international paymasters – they will not release the €130bn bail-out funds without it. Greece needs the cash to repay a €14.5bn bond due on March 20.

Markets generally suffered a bout of profit-taking following Thursday’s euphoria when hopes of a successful bond swap swelled. An expectation that insurance policies on Greek bonds will be paid out tempered the mood on Friday too.

The Stoxx 50 of leading European shares was up 0.1 percent, but the main stock index in Athens fell 0.7 percent. The euro retreated slightly from recent highs to trade 0.4 percent lower at $1.3215.

“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,” Finance Minister Evangelos Venizelos said.

“With the support of our official sector and private creditors, Greece will continue implementing the measures needed to achieve the fiscal adjustments and structural reforms to which it has committed, and that will return Greece to a path of sustainable growth,” he said.

Nevertheless, reports Reuters, the bond success went down well in EU capitals as the bloc tries to protect far bigger economies with debt problems such as Italy and Spain.

“It’s good news, it’s a good success,” French Finance Minister Francois Baroin told RTL radio. “It’s something that allows us to stay on a voluntary basis that avoids the risk of default.”

Germany’s finance ministry said the take-up was “a big step on the path to stabilization and consolidation of a sustainable level of debt, which gives Greece an historic opportunity”.

Critics argue that, even with the bondholder deal, the bail-out measures are inadequate. Raoul Ruparel, of Open Europe, said: “The package still offers little hope of making debt sustainable in Greece and puts taxpayers at the risk of greater losses under what looks to be an inevitable Greek default.”

The International Swaps and Derivatives Association said it would also meet later Friday to determine whether the deal would be deemed a so-called “credit event” – a technical default – which would trigger the payment of credit default swaps, which is essentially insurance against a default.

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 euro130 billion package of rescue loans. The IMF has set a tentative board meeting date of March 15 to discuss the size of its participation in Greece’s second bailout.

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