Greek PM urges wise use of PSI opportunity

Prime Minister Lucas Papademos on Friday hailed an unprecedented bond swap between the government and private investors, which would relieve Greece of more than 100 billion euros of its debt burden, as a “window of opportunity and hope.”

“From within a deep recession, and the trials of the Greek people, there rises the hope for an exit from the worst crisis since World War II,” Papademos said in a televised speech on Friday night.

“We do not have the right to waste the money that we will save in interest and debt repayments,” the premier said. “We must use it to modernize our infrastructure, make our economy more competitive, put the state in order.”

The debt swap, and the expected approval of a second bailout for Greece in the next two weeks, will help the country emerge from the “quicksand of the past few months,” the premier said. “For the first time Greece is not adding to but reducing the debt burden on its citizens and the next generations,” he said.

Earlier in the day, Finance Minister Evangelos Venizelos had struck a similar tone. “We owed it to our children and grandchildren to rid them of the burden of this debt,” he told a press conference. Venizelos was speaking after the government confirmed that 95.7 percent of its privately held bonds would undergo a haircut of 53.5 percent on their face value.

The aim of the government is to reduce some 205 billion euros in debt held by the private sector in order to qualify for a second bailout of 130 billion euros.

Of the total privately held debt, 177 billion euros has been issued under Greek law and 18 billion under foreign law. Another 7 billion euros relates to bonds issued under Greek law by public enterprises (DEKOs) and 3 billion to DEKO bonds that were issued under foreign law. The latter two categories are guaranteed by the Greek government.

Of the 177 billion euros, 152 billion euros’ worth of bonds were submitted for a haircut that would reduce their net present value by about three-quarters.

This was an 85.8 percent representation rate and allowed Athens, which needed at least 66 percent of investors holding bonds written under Greek law to participate, to trigger collective action clauses (CACs) so all holders of these bonds would suffer losses.

Athens said that 20 billion of the remaining 29 billion euros was submitted to the swap. The investors holding the 9 billion euros have until the evening of March 23 to make their final decision.

The Cabinet yesterday afternoon approved the activation of CACs.

Later yesterday, the International Swaps and Derivatives Association (ISDA) issued a statement saying that the debt swap constituted a “credit event” which would prompt payouts on credit default swaps, a type of insurance against sovereign bankruptcy taken out by investors.

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