Athens: Greece successfully closed its bond swap offer to private creditors on Thursday, opening the way to securing the funding it needs to avert a messy default on its debt, according to several senior officials.

One official, speaking on condition of anonymity, said take-up of bonds regulated by Greek law, the most significant part of the overall debt, was around 95%.

Finance minister Evangelos Venizelos

The biggest sovereign debt restructuring in history will see bond holders accept losses of some 74% on the value of their investments in a deal that will cut more than €100 billion from Greece’s crippling public debt.

Preliminary results from the offer are expected to be announced officially on Friday and finance minister Evangelos Venizelos will hold a news conference before a call with euro zone finance ministers in the afternoon.

After initial fears that the deal could fail altogether, pitching Greece and the euro zone into fresh crisis, the result provides a rare piece of good news for the government of Prime Minister Lucas Papademos.

Athens had said it would enforce the deal on all its bondholders, activating collective action clauses on the €177 billion worth of bonds regulated under Greek law.

That would potentially trigger payouts on the credit default swaps (CDS) that some investors held on the bonds, an event which would have unknown consequences for the market.

The so-called private sector involvement (PSI) deal is a key element in a broader international bailout aimed at averting a chaotic default by Greece and a potentially disastrous banking crisis across the euro zone.

The European Union and International Monetary Fund have made a successful bond swap a pre-condition for final approval of the €130 billion ($170 billion) bailout agreed last month.


Despite the apparent success, the deal will not solve Greece’s deep-seated problems and at best it may buy time for a country facing its biggest economic crisis since World War Two and crushed under debt equal to 160% of its gross domestic product.

However financial markets rose strongly in the run-up to the deadline as the threat of an immediate and uncontrolled default receded.

“This does not mean the debt situation in Greece is resolved, and this is not the last time we will be hearing about this. But it is a relief that it didn’t go the other way. It could have been a lot worse," said Tim Ghriskey, chief investment officer at Solaris Group in New York.

Bank stocks rose sharply and the risk premium on Italian and Spanish government bonds fell as investors hoped a Greek deal would curb the likelihood of any contagion spreading to other weaker euro zone economies.

Euro zone ministers could decide whether to clear the overall bailout package in their conference call on Friday afternoon, although they may leave the final decision until a face-to-face meeting on Monday.

Athens must have the funds in place by 20 March when some €14.5 billion of bonds are due, which it cannot hope to repay alone.

Greece has staggered from deadline to deadline since the crisis broke 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% in December, twice the euro zone average, with 51% of young people without a job.

There has been growing resentment 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.

But Greece, totally reliant on international support to stave off bankruptcy, has also infuriated both the European Union and the International Monetary Fund with its repeated failure to push through promised reforms.

“We have shown a lot of solidarity with Greece," German finance minister Wolfgang Schaeuble said late on Wednesday. “Everyone knows that the real problems of Greek society are in Greece and not abroad."