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Greece okays debt write-down

February 23, 2012

The Greek parliament has passed a massive bond swap that would effectively erase more than 100 billion euros of the country's debt. The deal with private sector creditors is part of the country's second rescue package.

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Griechenland / Flagge vor Parlament in Athen (Foto: dapd)
Griechenland / Flagge vor Parlament in AthenImage: dapd

Greek parliamentarians approved their bond swap deal by a show of hands on Thursday, clearing the way for the government in Athens to issue a formal offering to private holders of Greek debt.

The debt write-down will request that private investors exchange their existing holdings of Greek sovereign bonds for new ones with a 53.5 percent lower face value, longer maturities and lower interest rates.

The deal will effectively wipe out 107 billion euros ($142 billion) of Greek debt, connected to the second international emergency loans package designed to keep Greece afloat.

The debt swap remains a voluntary measure, though the government in Athens hopes that participation will reach or even exceed 85 to 90 percent. The Greek government has held extensive debates with private sector representatives to haggle over the terms and conditions of the deal since the plan was first announced at an EU summit last summer.

As part of a six-hour parliamentary debate preceding the vote, Finance Minister Venizelos Evangelos said that Greek politicians had little choice but to approve the measure and shoulder the difficult economic cuts tied to it.

"The true dilemma is: either sacrifices with prospects, or complete destruction with no prospects. Either cuts, which are harsh … or the inability to pay salaries and pensions. Either a reduction of fortunes or a complete loss of fortunes. Either high unemployment or generalized unemployment," Venizelos said.

Investors have 10 days to respond to the request and indicate whether they intend to take part. Venizelos has said he hopes the deal can be finalized by March 12, two days before existing Greek debts worth 14.5 billion euros must be repaid.

Gloomy economic auspices

The European Commission on Thursday predicted a 0.3 percent economic contraction across eurozone economies in 2012, with Greece leading the decline with negative growth of 4.4 percent. Barring an improbable economic about-face, Greece is facing its fifth consecutive year of recession. A record 21 percent of the Greek workforce is currently unemployed.

The Greek government is still scrambling to implement short- and medium-term austerity measures designed to reduce the country's national debt to 120 percent of GDP by 2020, with parliament due to vote on more cutbacks for 2012 worth 3.2 billion euros next week.

As a precondition for international loans and private sector assistance, the Greek authorities have also pledged future cuts. These measures will include further cuts to pensions, as well as reductions in health, education and defense spending.

State hospital doctors went on a 24-hour strike on Thursday to protest against the cutbacks, while health workers marched on parliament opposing the austerity measures.

msh/acb (AFP, AP, dpa)