Greece secures debt deal
Creditors agree to biggest writedown in history, giving up more than half
ATHENS, Greece – Greece’s private creditors agreed to take cents on the euro in the biggest debt writedown 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 debt in two weeks without the agreement, sparking turmoil in the markets and sending shock waves through the other 16 countries that use the euro.
Prime Minister Lucas Papademos on Friday 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 aiming to turn around the country’s debt-ridden 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. He estimated Greece could return to the markets “within a few years.” If recovery continues, “I think the risk for Greece and the risk on the eurozone will be very manageable,” he said.
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, meanwhile, recommended the fund chip in $36.7 billion to the rescue package. The IMF’s board is set to decide on the final contribution next week.
European leaders hailed the deal as a seminal moment in their effort to stem the crisis and get Greece on its feet.
“The page of the financial crisis is being turned,” said French President Nicolas Sarkozy.
However, some economists are concerned that Greece is merely buying time. The breather allows European governments and banks to strengthen their financial defenses, leaving them less vulnerable if Greece eventually cracks.
The deal and expected bailout do “more to protect Europe from Greece than for Greece itself,” said Jacob Funk Kirkegaard, research fellow at the Peterson Institute for International Economics.