Greece closes in on finish line in race to slice debt

By Elena Becatoros, AP

ATHENS, Greece–Greece’s race to slice 107 billion euros (US$140 billion) off its national debt entered the final stretch Thursday, with markets confident enough investors will accept to write down more than half of the value of their Greek bond holdings. If too few investors agree and the swap fails, the crisis-hit country will likely 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. But markets appeared optimistic that Greece would muster enough support. Greece’s stock exchange was up 1.4 percent, while the Stoxx 50 of leading European shares rose 1.2 percent. The euro was trading 0.7 percent higher at US$1.322. Athens is asking private creditors to swap their Greek bonds for new ones with a 53.5 percent lower face value, lower interest rates and longer maturity dates. 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, can gradually return to growth and eventually repay the remaining money it owes. By early Thursday, banks, pension funds and other investors holding more than half the 206 billion euro (US$270 billion) total debt in public hands had pledged to take part. New legislation will allow Greece to force holdouts into accepting the deal if overall participation is not high enough. Investors have until 10 p.m. local time (2000 GMT) to sign up. Only bonds held by private investors are part of the deal, meaning that outstanding amounts held by the European Central Bank and other central banks are exempt. Athens will announce the results early Friday morning, after which finance ministers of European countries using the euro are to discuss the outcome in a conference call. The complex bond swap, known as the Private Sector Involvement, or PSI, is critical for Greece to secure its second bailout — a 130-billion-euro (US$171 billion) package of rescue loans from other eurozone countries and the International Monetary Fund (IMF). Without the funds, Greece faces a potentially messy default that could drag down other financially vulnerable countries in Europe and threaten the joint currency itself.

Athens has said it needs 90 percent participation for the deal to be successful. However, it has said it can trigger legislation to force holdouts to go along if creditors holding between 75 percent and 90 percent sign up.