Almost 95% of private creditors have taken up the Greece bond swap offer by the Thursday evening deadline, lightening Greece’s debt burden. This is planned to avoid a default on Greece’s debt liability and has seen bond holders accepting losses of almost 75% on the value of their investments.
The European Union and International Monetary Fund made this bond swap a pre-condition for final approval of the 130 billion euros ($170 billion) bailout, which was agreed last month. The results are expected to be announced on Friday morning and Finance Minister Evangelos Venizelos will hold a news conference before a call with Eurozone Finance Ministers in the afternoon. The result provides good news for the Greek government.
Despite the success of this program, the deal does not resolve Greece’s debt problems but rather reduce its debt liability from 160% of its Gross Domestic Product (GDP). It buys Greece some time to try to restart the economy, which is suffering a recessionary cycle. The concerns of a contagion spreading to other European countries and fear of the threat of failure receded and this led to a rise in the financial markets on Thursday. Bank stocks led the rise, with the risk premium on Italian and Spanish government bonds, amongst others, falling.
In the Friday conference call, Eurozone ministers could decide to clear the overall bailout package but I believe the decision will be delayed until the face-to-face meeting on Monday. To avoid default, Greece must have funds available of 14.5 billion Euros on 20th March to repay maturing bonds. The growing fear and expectation is this will not be the last bail-out needed for Greece; and at some point the Eurozone and their other International Partners will say “no-more”. The question is, “What happens then?” But for now stability is hoped for and expected.
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