By: Dr. Mike Campbell
The EU/IMF drew a line in the sand requiring that Greece should secure the backing of its creditors for a debt swap, or haircut, in order for it to receive a second bailout package worth €130 billion. The deadline for Greece to obtain the approval of at least 75% of its creditors for the debt swap was 8 PM last night. According to the Greek Ministry of Finance, this target was comfortably achieved. Bond holders fell into two camps; creditors with debts subject to Greek law and international creditors. Of the first group, some 85.5% of creditors have accepted the deal and in the latter group, 69% had signalled their agreement. The level of acceptance of the deal has been sufficiently high that the government will be able to compel other creditors to accept the offer. Greece has extended the deadline for international creditors to accept the deal until 23rd March, so it is likely that further creditors will follow suit.
The EU/IMF bailout package required approval by both the Dutch and German parliaments, but those hurdles were cleared last month. The payment can now be made such that Greece can honour its current obligations.
The next variable to be met in the Greek saga will be the reaction of credit rating agencies to the deal. Since Greece has been unable to honour the terms in force when their bonds were offered, they have certainly defaulted on the bonds, but they have, at least, avoided a disorderly default. The current sovereign credit ratings of Greece are about as low as they could go, so there is little scope for further punishment there. Perversely, when Standard and Poor’s last downgraded Greek sovereign debt, they said that they may improve the rating once the debt swap had gone ahead.
he debt swap and the austerity package that Greece has had to adopt to secure the bailout are designed to reduce Greek sovereign debt to 120% of the nation’s GDP over the next eight years.