Greece Closes in on Critical Bond Swap

Greece moved closer on Thursday to concluding a bond swap deal with private creditors that it desperately needs to stave off a messy default and buy time to repair its exhausted economy.

With the 2000 GMT deadline for acceptances approaching and holders of at least 57 percent of the total 206 billion euros in outstanding debt already committed, there appeared to be growing confidence in Athens that the exchange would go through.

"The pace of responses to the bond offer is good, the percentage of bondholders tendering voluntarily is very high," a government official, who spoke on condition of anonymity, told Reuters. "It is going well, we are optimistic," he said.

Financial markets picked up, with bank stocks rising sharply and the risk premium on Italian and Spanish government bonds falling as investors hoped a Greek deal would curb the risk of default in other weaker euro zone economies.

Major banks and pension funds have supported the offer, accepting losses of as much as 74 percent on the value of their investments as part of a deal aimed at cutting more than 100 billion euros from Greece's crippling debt.

"If all goes well, tomorrow we will be able to announce that a debt burden of 105 billion euros has been lifted from the Greek people," Finance Minister Evangelos Venizelos told parliament. "For the first time we are cutting debt instead of adding to it."

Preliminary results of the exchange are expected to be announced officially at 0600 GMT on Friday.

The European Union and International Monetary Fund have made a successful bond swap a pre-condition for final approval of the 130 billion euro ($170 billion) bailout agreed last month and ministers will decide whether to clear the package in a conference call on Friday afternoon.

Provided it passes a two thirds acceptance threshold, Greece is expected to use so-called collective action clauses (CAC) to enforce the deal on all holders of the 177 billion euros in outstanding debt regulated by Greek law.

Separate conditions cover the remaining 10 percent of so of bonds regulated by English and international law, leaving scope for a legal battle by some of the hedge funds holding out against the swap offer.

It also remains to be seen whether credit default swaps (CDS) which some investors have taken as insurance against a forced restructuring of the debt will be paid out.


Greece must have the bailout deal cleared by March 20 when some 14.5 billion euros of bonds are due. Missing that payment would pitch it into immediate default, potentially destabilising much of the euro zone's banking and financial system.

"I expect the bond swap will go well," said one senior banker who declined to be named. "The baseline scenario is that CACs will be used but at the end of the day it's the final result that counts, securing the country's funding package."

Athens has staggered from deadline to deadline since the crisis broke out two years ago and several of its international partners have expressed open doubts about whether its second major bailout in two years will be the last.

Underlining the severe problems facing Greece after five years of deep recession, data on Thursday showed unemployment running at a record 21 percent in December, twice the euro zone average, with 51 percent of young people without a job.

There has been growing resentment in Greece over the austerity medicine ordered by international creditors which has compounded the pain from a slump which has seen the economy shrink by a fifth since 2008.