Greek Debt Swap Clears Way for Bailout

On March 9, the Greek government secured the support from most of its bondholders for a crucial bond swap on Friday. This swap is a necessary step for Greece to qualify for its second massive international bailout.

The deal is the largest restructuring of government debt in history. It will cut Greece’s debts by about €107 billion. The deal involves €172 billion worth of debt so far. More than 80 percent of Greece’s investors are taking losses of up to 74 percent.

“This is a big day for Greece. They have managed to secure €107 billion off their debt. This debt swap deal has also paved the way for €130 billion in bailout loans from the European Union and the International Monetary Fund,” said Associated Press business editor Phil Tutt.

A derivatives industry body will soon determine whether this will be considered a credit event, a technical name for a default. It is expected to rule the swap as a default, the first time in 60 years that a developed country has defaulted on its debt. However, it doesn’t look like the credit event will have an impact on the market.

Both the European Union and the International Monetary Fund said that the debt swap is necessary for Greece to receive its €130 billion bailout.

German Foreign Minister Guido Westerwelle said in a news conference today that he is “happy about the success,” but that there is “no reason to give the all-clear.” Germany is the largest contributor to the bailout fund and has used its huge financial leverage to undermine Greece’s sovereignty in dealing with the crisis.

Continue to watch Greece; its debt situation is still far from resolved. Expect to see a trend: The more money Greece accepts, the more sovereignty it will have to give up, and the more power Germany will wield in the eurozone.