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Greece closes in on target in bond swap deal
ATHENS (AP) — Greece‘s race to slice 107 billion euros ($140 billion) off its debt entered the home stretch Thursday, with a government official saying participation in a bond swap deal was already above 75 percent and markets appearing confident of success.
Investors have until 10 p.m. Greece time (3 p.m. EST) to sign up for the deal, which aims to lower Greece‘s national debt by having private creditors swap their Greek bonds for new ones with a 53.5 percent lower face value, lower interest rates and longer maturity dates.
The swap is a critical part of the country’s second international bailout. If too few investors agree and it fails, the crisis-hit country likely will default on its debt in less than two weeks when a big bond repayment is due, prompting renewed turmoil in financial markets and knocking confidence in the global economy.
A government official said Thursday evening that as of Wednesday night, the takeup on the offer already had topped 75 percent. He spoke on condition of anonymity because the deadline for private creditors to sign up to the deal was still hours away.
Athens has said it needs 90 percent participation for the deal to be successful. However, it can trigger legislation forcing holdouts to go along if creditors holding between 75 percent and 90 percent sign up.
Markets have been optimistic that Greece will muster enough support. The Athens stock market closed up 3.1 percent, while the Stoxx 50 of leading European shares rose 0.9 percent. The euro was trading 0.8 percent higher at $1.3240.
The bond swap is a radical attempt to finally pull Greece out of its debt spiral and put its shrinking economy back on the path to recovery. The hope is that by slashing the overall debt, the country, which is in a fifth year of recession, gradually can return to growth and eventually repay the remaining money it owes.
The task at hand, even with the debt reduction, is massive. Official figures released Thursday showed unemployment shot up to a record 21 percent in December, compared with 14.8 percent last year. It’s even worse for young people, with 51.1 percent of those between ages 15 and 24 out of work.
“Obviously, for the majority of bondholders it does make sense to accept the deal, as it is better to get something rather than nothing, and if the exchange failed and Greece undertook a disorderly default, then the likelihood is that nothing is close to what bondholders would recover,” said Gary Jenkins, managing director of Swordfish Research. “Thus, the most likely outcome remains that Greece will receive enough acceptances to move ahead with the deal and trigger the second bailout package.”
By early Thursday, banks, pension funds and other investors holding well over half the 206 billion euro ($270 billion) total debt in public hands had pledged to take part.
Italian Premier Mario Monti was upbeat.
“The resolution of the Greek financial crisis is in sight,” he said Thursday afternoon.
Only bonds held by private investors are part of the deal, meaning outstanding amounts held by the European Central Bank and other central banks are exempt.
Athens will announce the results early Friday, after which finance ministers of European countries using the euro are to discuss the outcome in a conference call.
Greek Prime Minister Lucas Papademos was holding a Cabinet meeting Thursday afternoon on the deal. Finance Minister Evangelos Venizelos informed the ministers that the process had been “going well,” an official in the meeting said. He spoke on condition of anonymity as no official announcements had been made.
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