Greece Moving Ahead With Debt Swap

According to the Greek Ministry of Finance, 85.8 percent of private investors are taking part in the voluntary swap of bonds regulated by Greek law and 69 percent of its international debt holders agreed a debt swap. Greece extended the deadline for bondholders not governed by Greek law to sign up until 23 March.

Investors are now waiting to see if forcing Greek bondholders to take the deal, i.e enforcing so-called Collective Action Clauses (CAC), will bring the deal to 95.7 percent of all privately-held Greek debt.

The goal of the debt swap is to reduce the 206 billion euros of privately held Greek debt down by 53.5 percent. The deal should cut 107 billion euros from Greece’s total government debt.

The European Union and International Monetary Fund, have demanded the bond swap as a condition for the 130 billion euro bailout package, the country’s second since 2010.

The International Swaps and Derivatives Association (ISDA) will meet later on Friday – at 13:00 GMT – to determine whether the deal would be deemed a so-called “credit event” – a technical default – which would trigger the payment of credit-default swaps (CDS), which is essentially insurance against a default. However, the ISDA reports that CDS payouts are likely to be around $3.2 billion, so lower than previously feared.

Greece still remains a long way from solving its economic, political and social problems. The demand from the Greek government is to cut debt from 160 percent of GDP to a little over 120 percent of GDP by 2020. Some economists fear further austerity measures will damage the economy increasing the chance Greece will require more bailouts or debt write-offs. The country also faces elections in April or May when the pro-bailout conservatives and socialists face an array of smaller parties to the left and right that reject the rescue, and could struggle to form an effective government.

Sources: Reuters and BBC

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Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.