Greece has succeeded in pushing through a debt haircut needed to obtain a second bailout package from the European Union (EU) and the International Monetary Fund (IMF). A large majority of the country's private-sector creditors have agreed to the historic debt restructuring, thus paving the way for the second aid package. The government in Athens announced on Friday morning that 85.8 percent of private creditors had agreed to the debt swap.
The deadline for participating in the debt restructuring had been 9 p.m. CET on Thursday. The Greek Finance Ministry stated that of the €177 billion ($234 billion) in bonds issued under Greek law, €152 billion would be submitted for exchange, an acceptance rate of 85.8 percent. Of the remaining bonds, which are under the jurisdiction of foreign laws, 69 percent of private creditors agreed to a swap.
For Finance Minister Evangelos Venizelos, however, that doesn't go far enough. Greece would now like to compel all remaining holders of bonds issued under Greek law to swap their securities. In order to make that happen, so-called collective action clauses (CACs) would have to be activated using legislation passed in Greece expressly for that purpose in February that also permits it to be done retroactively. Together with the other participants in the debt haircut, that would bring the total to 95.7 percent. That would then cover €197 billion of the total of €206 billion in Greek government bonds currently in the hands of private creditors. In addition, the deadline for participation by holders of Greek bonds covered by foreign law has been extended until March 23.
After months of nail biting, the current acceptance rate already clears the path for the biggest debt restructuring that has ever occurred in a country. As part of the debt restructuring, private creditors including banks, funds and insurance companies are swapping their old Greek government bonds for new securities with a lower nominal value and longer maturity periods that in some cases extend to up to 30 years. The creditors will forfeit a minimum of 53.5 percent of the nominal value of their bond holdings. The debt haircut is a key precondition in order for Greece to obtain the new bailout package from its EU partners.
'A Historic Moment'
Speaking on television on Friday morning, Greek government spokesman Pantelis Kapsis said: "I think it's a historic moment. It will allow us to eliminate more than €100 billion in debt." Finance Minister Venizelos also thanked creditors "who have supported our ambitious program of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavor."
Venizelos was expected to hold a press conference later on Friday in order to comment on the results of the debt haircut. Before providing any concrete details on how things will proceed from here, Venizelos is first expected to consult with his counterparts in the other 16 euro-zone countries. The euro-zone finance ministers planned to conduct a telephone conference on Friday afternoon to discuss the restructuring. Afterwards, they want to release the new, €130 billion bailout package for Athens. However, a final decision may be postponed until Monday. The IMF has also said it wants to discuss the bailout package at a March 15 meeting.
A decision is also expected on Friday afternoon over whether the debt swap was a "credit event" -- in other words, whether the debt restructuring is tantamount to a Greek default. The decision is to be made by the determinations committee of the International Swaps and Derivatives Association. If the haircut is determined to be a credit event, if would trigger the payout of credit default swaps contracts valuing around €3 billion, according to the Reuters news agency.
IMF Chief Lagarde: 'Spring Is in the Air'
Internationally, Greece received praise for the debt restructuring on Friday. The risk of a crisis in the euro zone has been "removed for now," IMF head Christine Lagarde said before the official news had been announced. "It looks as if it is going through," she said. "It looks as if the numbers will be promising … Spring is in the air."
And United States Treasury Secretary Timothy Geithner also praised developments in Europe, saying: "Over the last few months, (the Europeans) have done a much better job getting their arms around this and getting people more confidence around the world that they are going to contain the risk of crisis." However, "it is going to be a really difficult long road for them," he told public broadcaster PBS. "People here in the United States and around the world can be more confident now that Europe is not going to cause a huge amount of damage to the global economy or to our economy."
In Germany, the largest EU funder of the bailout package, the Finance Ministry described the high take-up rate as an "historic opportunity" for Greece. "We welcome the fact that the private sector will, to a high degree voluntarily, participate in Greece's stabilization."
"The very strong and positive result provides a major opportunity now for Greece to move ahead with its economic reform program, while strengthening the euro area's ability to create an economic environment of stability and growth," said Josef Ackermann, Deutsche Bank chairman and chairman of the board of directors of the Institute of International Finance (IIF).
'Very, Very Good'
Michael Kemmer of the Association of German Banks told public broadcaster Deutschlandfunk that he had predicted a much lower participation in the debt swap. He described the 85.8 percent figure as "very, very good."
The financial markets also expressed relief over the development. Japan's key Nikkei index closed with a 1.7 percent gain at 9,929 points. At one point on Friday, the Nikkei even surpassed the psychologically important level of 10,000 points -- a level not reached since August 2011.
However, news that Greece planned to activate its collective action clauses put pressure on the euro, which fell to $1.3224 after starting the day at $1.3275.