Brussels, 09/03/2012 (Agence Europe) - The eurozone breathed a sigh of relief as Greece managed to convince 83.7% of its private lenders to participate in a write-down of their Greek bonds, the biggest such write-down ever. “On behalf of the Greek Republic, I wish to express my appreciation to all of our creditors who have supported our ambitious programme of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavour”, said Greek Finance Minister Evangelos Venizelos. The lenders have agreed to lose over 70% of the face value of their bonds, to be replaced by longer-maturity bonds at a fixed interest rate. On Monday, the Eurogroup is expected to decide to finally pay out the first instalment of the €130 billion second Greek bailout.
Meeting via videoconference on Friday 9 March after the closure of the Greek government's write-down offer, the eurozone finance ministers said they were encouraged by the high private sector involvement in the write-down. Agreement on the second bailout requires 90% of the private sector lenders to take part, in order to reduce the country's debt from 160% of GDP to 120%.
The Eurogroup has been informed of the activation of special legislation to force the remaining private investors to join the write-down. Of the total €177 billion Greek bonds, €152bn will be covered by the voluntary write-down, which amounts to 85.8% of private investors. Making use of the special legislation is likely to lead to a credit event and the payment of €2.3bn in credit default swaps (insurance contracts), which will have to be absorbed by the markets. In order to attract more investors, the write-down programme has been extended until 23 March 2012 for bonds issued under non-Greek legislation.
Berlin welcomed the operation as a great step forwards towards stability and consolidation. Paris said it was a “great success” that enabled all the targets to be met. The IMF director general, Christine Lagarde, said the debt exchange was promising. The IMF will decide next week how much it will contribute to the second Greek bailout. “That contribution by the private sector is an indispensable element to ensure future sustainability of the Greek public debt and, thus, a decisive contribution to financial stability in the euro area as a whole. In doing so, investors recognise that Europe has committed an important amount of funds to this voluntary debt exchange”, commented Euro Commissioner Olli Rehn. Of the €130bn bailout, €30bn will be used to boost the new bonds to be received by private investors. The president of the European Council, Herman Van Rompuy, tweeted that it was a turning point in the crisis.
A positive outcome to the Greek bond write-down is one of the criteria to be met before the promised cash is released. In a statement, the Eurogroup welcomed the report by the troika of lenders (the Commission, ECB and IMF) which states that Greece has introduced the prerequisites in a satisfactory manner, the prerequisites being things like pay and pension cuts. Like the Commission, the Eurogroup urges Athens to keep up the momentum and rigorously apply the structural adjustment plan. There are clearly many challenges ahead before Greece can return to the money markets unaided to roll over its debt. The Eurogroup considers, however, that the necessary preconditions have now been met for the finalisation of the second Greek bailout. (MB/transl.fl)