Enough private investors have agreed to take huge losses on their Greek bonds enabling a debt swap deal to go forward, a government source said yesterday, clearing a key hurdle for a new bailout package for Greece.
As a 2000 GMT deadline for bondholders to decide whether to swap their Greek debt came and went, a government source said that participation had already passed 75 per cent, the minimum level sought by Athens for the deal to go through.
With the threshold met, Athens could now trigger so-called collective action clauses it retroactively introduced into the bonds to force holdouts to go along with the deal.
By using the clauses, Greece would get even closer to the 95 per cent participation rate the EU and International Monetary Fund said is necessary to reduce Greece debt to a sustainable level of 120 per cent of gross domestic product in 2020.
Talk that the level was close to being reached trickled out throughout the day helping send stock markets sharply higher across the globe and giving leaders some confidence that a page was about to be turned.
Italian Prime Minister Mario Monti said over 60 per cent of private creditors had accepted the debt swap and the global bank association that led the initiative said a deal was close at hand.
The debt write-down is the biggest ever attempted, overshadowing Argentina’s $82-billion default in 2002, the equivalent of €73 billion at the time.
It is designed to erase more than €100 billion from Greece’s near and midterm debt and replace it with new maturities.
The exercise is meant to make repayment of the debt, currently at over €350 billion, more sustainable in the immediate future, thereby giving the struggling Greek economy much needed breathing room.
“Tonight at midnight, a procedure of historic character reaches completion. An operation of unprecedented size and complexity to drastically cut Greek state debt,” Finance Minister Evangelos Venizelos told Parliament.
Officials would need two hours after the deadline to determine the level of participation, Greek news reports said. Greek Prime Minister Lucas Papademos said he expected maximum participation as a take-up too low would ultimately mean an even greater danger of a disorderly default that the IIF warned could cost eurozone nations one trillion euros.
European stock markets posted strong gains yesterday following rises across Asia, and Wall Street also rose on Greek optimism .