Greece saved itself from the immediate threat of catastrophic default today as
enough banks and hedge funds signed up to a crucial debt swap to unlock a
second euro 130 billion (pounds sterling 108 billion) international rescue for
the crisis nation.
Its deal with private investors holding euro 206 billion in Greek debt sees the value of their bonds slashed by more than 70 percent under plans to cut Greece's borrowing burden to a more manageable 120 percent percent of GDP by 2020.
Finance minister Evangelos Venizelos hailed an "extremely successful" operation as markets -- jittery earlier this week in the run-up to Thursday evening's deadline -- took the deal in their stride.
Spreadex trader Simon Furlong said: "After quite a rollercoaster ride, it looks like Greece has finally done it, allowing Europe to avoid what could have been a disorderly default in which the costs do not bear thinking about."
A leaked document from the Institute for International Finance, which led the protracted negotiations with the Greek government over the deal, put the cost of a chaotic Greek default at euro 1 trillion earlier this week.
In total 85.8 percent of investors holding debt governed by Greek law signed up to the deal, allowing Athens to force the remainder to take part by triggering so-called "collective action clauses".
Of investors holding around euro 20 billion in Greek bonds governed by international law, just 69 percent have agreed so far, prompting Venizelos to extend the deadline until March 23.
If the swap had failed, Greece would have faced defaulting on its debts in two weeks, when a euro 14.5 billion bond repayment falls due. But Athens' use of the collective action clauses on the Greek-law bonds is likely to prompt the US-based International Swaps and Derivatives Association to declare a "credit event" -- triggering around $3.2 billion (pounds sterling 2 billion) in payouts to holders who have bet against Greece by using credit default swaps.
But analysts are sceptical over whether the deal will work in the long term as Greece's crippled economy struggles to pull itself away from collapse. More than one in five adults are jobless, while youth unemployment has soared above 50 percent.
Jason Gaywood of currency firm HiFX warned: "120 percent of GDP is still a level of debt that may be described as unsustainable, and with Greece in its fifth year of recession and facing extreme austerity for the foreseeable future, it is very difficult to see how Athens can steer a course back to prosperity from here."
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