Euro area exhales with Greece’s successful swap

ATHENS / WASHINGTON - The Associated Press

A pedestrian looks a sign in a shop reading ‘One euro, price haircut’ in Athens on March 8. ‘A window of opportunity is opening’ with the success of a crucial credit swap deal to cut the country’s debt, says Greek Finance Minister Evangelos Venzilos. REUTERS photo

The finance ministers of the eurozone say Greece can receive a first batch of bailout money of up to 35.5 billion euros ($46.9 billion) to fund a massive debt relief deal with private investors.

The ministers also say that Greece has fulfilled the conditions to soon get approval for the remainder of the 130 billion euros bailout.

Earlier on March 9, Greece said investors holding up to 95.7 percent of debt in private hands will swap their Greek bonds for new ones with a lower face value and better repayment terms.

In return, these investors will receive up to 30 billion euros, or 15 percent, of the remaining money they are owed through short-term bonds backed by the eurozone.

Investors participating in the swap will also get additional 5.5 euros billion in outstanding interest payments.

The Greek government said on March 9 that 83.5 percent of private investors holding its government bonds were participating in a bond swap. Of the investors holding the 177 billion euros ($234 billion) in bonds governed by Greek law, 85.8 percent joined.

‘Exceptional success’

“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.

“A window of opportunity is opening” with the success of the deal to reduce the country’s 368 billion euros debt by 105 billion euros, 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.

However, the $172 billion bailout is not likely to keep Greece from eventually defaulting on its debts and abandoning the euro, many economists say.

The bailout plus an agreement endorsed on March 9 by most private lenders to reduce Greece’s debts “does more to protect Europe from Greece than for Greece itself,” says Jacob Funk Kirkegaard, research fellow at the Peterson Institute for International Economics.

A similar approach worked a decade ago. When Argentina ran into trouble in 2002, stopgap bailouts gave financial markets time to prepare for an almost-inevitable default.

Without its bailout, Greece would have missed a March 20 bond payment and plunged into chaos, perhaps taking Europe’s financial system with it. It was the second time Greece had to be rescued. It got an initial $146 billion (110 billion euros) bailout in 2010.

Still, the breather allows European governments and banks to strengthen their financial defenses, leaving them less vulnerable if Greece cracks up a few months or even a few years from now.