Europe, euphoric after the Greek agreement, wants to believe at the end of the crisis
Greece has avoided bankruptcy by obtaining an agreement Friday to its private creditors to participate in the biggest operation of debt reduction in history and a green light from its partners in the euro area to help pay her 130 billion euros.
The private creditor agreement triggered a wave of enthusiastic reactions within the euro area, stuck for over two years in the debt crisis. Herman Van Rompuy, freshly reelected to the European Union, said that "turning the crisis is reached." "We are heading for calmer seas," he said.
French President Nicolas Sarkozy has held that "the page of the financial crisis is beginning to turn" while German Finance Minister Wolfgang Schäuble has wanted more cautious. "We are not out of the woods, but we made a big important step," he told reporters.
Direct consequence: the International Monetary Fund announced it will participate in the new financing plan promised to Greece. After consulting the Member States of its board Friday, IMF Executive Director, Christine Lagarde, said the proposed amount was 28 billion euros to be paid over four years (the remaining 10 billion loan in 2010, and additional 18 billion), more than envisaged so far.
100 billion erased
After nine months of tough negotiations, Athens Friday finally got the guarantee to erase at least 100 billion euros of debt to private. The operation - the largest of its kind ever made - should help significantly reduce the national debt which is sinking into a deep recession, GDP fell by 7.5% yoy in the fourth quarter , according to official figures released Friday also.
In 2020, according to official projections, the Greek sovereign debt should represent more than 120.5% of GDP against over 160% today, a rate considered tolerable by the creditors, although it remains very high. Finally, Greece has secured the participation of creditors representing 95.7% of debt held by the private sector, which amounts to 206 billion euros of a total of over 350 billion.
To achieve such a result, the government had to resort to trigger clauses requiring recalcitrant creditors to go along with the offer. This decision led Fitch to lower the rating of Greece and to place the country in "partial default" after the announcement of the results of the debt swap. Note the country should be raised once the deal is completed. Another rating agency, Moody's said that Greece had defaulted on its debt, leaving unchanged its rating to "C" the lowest possible.
CDS triggered
ISDA, the professional organization of insurance against credit risk (CDS, credit default swaps), has unanimously determined that it was a "credit event" and that insured investors could be repaid. The CDS can be triggered when a borrower terminates the contract which governs the loan. ISDA has estimated that the use of "collective action clauses" designed to force the recalcitrant creditors, was that debt restructuring was not "voluntary".
Specifically, the exchange of securities to be held Monday for the obligations under Greek law. Security holders are not subject to Greek law have more time, until March 23, 0800 GMT, to make over 7 billion in bonds that are still missing the call. Despite these problems to be solved, the Greek Finance Minister Evangelos Venizelos on Friday expressed his "gratitude" towards all creditors of Greece "who supported" the program of reform and adjustment of the country " who shared the sacrifices of the people in its historic effort. "
"A vote of confidence," said Venizelos
He welcomed participation "massive" in the operation, which is "a vote of confidence in the prospects of recovery of the Greek economy" and the ability of the euro area to turn the page on the crisis indebtedness. Based on these results, the President of the Eurogroup, Jean-Claude Juncker, said that "conditions" were "satisfied" that the countries of the euro area pay the promised aid to Greece in October, after a conference Telephone Finance Ministers of the forum.
The approval will allow Athens to repay a maturity of 14.5 billion euros by March 20 and avoid a disorderly bankruptcy, with unpredictable consequences. The payment of money will be in stages, but the euro area has already begun the process Friday by releasing 35.5 billion euros of aid for banks that have agreed to exchange their debt, said Schäuble. The rest of the pack - 94.5 billion euros in loans mainly - probably will be released next week. The IMF will meet Thursday, and in all likelihood will make available to Greece a first tranche of its new loan.
The private creditor agreement triggered a wave of enthusiastic reactions within the euro area, stuck for over two years in the debt crisis. Herman Van Rompuy, freshly reelected to the European Union, said that "turning the crisis is reached." "We are heading for calmer seas," he said.
French President Nicolas Sarkozy has held that "the page of the financial crisis is beginning to turn" while German Finance Minister Wolfgang Schäuble has wanted more cautious. "We are not out of the woods, but we made a big important step," he told reporters.
Direct consequence: the International Monetary Fund announced it will participate in the new financing plan promised to Greece. After consulting the Member States of its board Friday, IMF Executive Director, Christine Lagarde, said the proposed amount was 28 billion euros to be paid over four years (the remaining 10 billion loan in 2010, and additional 18 billion), more than envisaged so far.
100 billion erased
After nine months of tough negotiations, Athens Friday finally got the guarantee to erase at least 100 billion euros of debt to private. The operation - the largest of its kind ever made - should help significantly reduce the national debt which is sinking into a deep recession, GDP fell by 7.5% yoy in the fourth quarter , according to official figures released Friday also.
In 2020, according to official projections, the Greek sovereign debt should represent more than 120.5% of GDP against over 160% today, a rate considered tolerable by the creditors, although it remains very high. Finally, Greece has secured the participation of creditors representing 95.7% of debt held by the private sector, which amounts to 206 billion euros of a total of over 350 billion.
To achieve such a result, the government had to resort to trigger clauses requiring recalcitrant creditors to go along with the offer. This decision led Fitch to lower the rating of Greece and to place the country in "partial default" after the announcement of the results of the debt swap. Note the country should be raised once the deal is completed. Another rating agency, Moody's said that Greece had defaulted on its debt, leaving unchanged its rating to "C" the lowest possible.
CDS triggered
ISDA, the professional organization of insurance against credit risk (CDS, credit default swaps), has unanimously determined that it was a "credit event" and that insured investors could be repaid. The CDS can be triggered when a borrower terminates the contract which governs the loan. ISDA has estimated that the use of "collective action clauses" designed to force the recalcitrant creditors, was that debt restructuring was not "voluntary".
Specifically, the exchange of securities to be held Monday for the obligations under Greek law. Security holders are not subject to Greek law have more time, until March 23, 0800 GMT, to make over 7 billion in bonds that are still missing the call. Despite these problems to be solved, the Greek Finance Minister Evangelos Venizelos on Friday expressed his "gratitude" towards all creditors of Greece "who supported" the program of reform and adjustment of the country " who shared the sacrifices of the people in its historic effort. "
"A vote of confidence," said Venizelos
He welcomed participation "massive" in the operation, which is "a vote of confidence in the prospects of recovery of the Greek economy" and the ability of the euro area to turn the page on the crisis indebtedness. Based on these results, the President of the Eurogroup, Jean-Claude Juncker, said that "conditions" were "satisfied" that the countries of the euro area pay the promised aid to Greece in October, after a conference Telephone Finance Ministers of the forum.
The approval will allow Athens to repay a maturity of 14.5 billion euros by March 20 and avoid a disorderly bankruptcy, with unpredictable consequences. The payment of money will be in stages, but the euro area has already begun the process Friday by releasing 35.5 billion euros of aid for banks that have agreed to exchange their debt, said Schäuble. The rest of the pack - 94.5 billion euros in loans mainly - probably will be released next week. The IMF will meet Thursday, and in all likelihood will make available to Greece a first tranche of its new loan.
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