Greece Passes Key Debt Test

March 9, 2012


Just over 80% of Greece’s private-sector creditors had agreed by a Thursday evening deadline to turn in their bonds for new ones with less than half the face value, touching off a massive debt swap that marks a seminal moment in Europe’s long-frustrated efforts to rescue its most financially vulnerable nation.

The Greek government announced the results of its proposed restructuring early Friday morning. It said 83% of bondholders had voluntarily submitted to the deal, and that it would invoke so-called collective-action clauses to impose the exchange on most of the rest, bringing participation up to 96%.

The announcement that the restructuring will go ahead precipitates the largest-ever sovereign-debt default and the first for a Western European country in half a century.

“The response exceeded all expectations and every historic precedent,” Greece’s finance minister Evangelos Venizelos said Friday.

Greece had proposed €206 billion ($273 billion) in bonds for the exchange. Just over €100 billion will be sliced from the amount Greece owes.

Stock markets in the U.S. and Europe rose Thursday as more creditors signed up to the exchange. While a consummated debt swap has been on the horizon for more than a week, the diminished uncertainty of a messy surprise lifted risky assets. The Italian 10-year bond, a critical barometer of euro-zone sentiment, was sharply stronger early Thursday. Markets in Asia were higher Friday, with Tokyo’s Nikkei closing up 1.7% after breaking 10000 intraday for the first time since August. On Friday in the U.S., data on nonfarm payrolls, the jobless rate and trade deficit will be released.

The outcome of the debt exchange had been becoming increasingly clear over the past several days, but it remains a milestone for the European Union’s beleaguered common currency, and for the debt crisis that began in Greece more than two years ago and has threatened the project ever since.

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