Greece Bond Swap Deal: An Insight

- Radhika Kamat

For half of a decade now, Greece has been painstakingly trying to get back on its feet as it wobbles under the weight of recession and a state of economic crisis. It is in the light of such an economic  downfall that the country saddled with a debt which is 160 percent of its GDP had to suggest a “Greek Bond swap deal”.

What is the Greek bonds swap deal?

Greece is currently not in a position to make good on the debts it owes to banks, hedge funds, pension funds and other private investors.  They collectively hold around Euro 200 billion in the Greek government bonds. The Greek government is therefore looking to enter into an agreement with these private investors where in they have been asked to forgive 53.5% of the face value of the bonds held by them. Also the interest rate on their balance holdings has been slashed to 3.65 % as opposed to the earlier promised 4.8%. This leaves the private investors with a present value loss of more than 70 percent of their holdings. These bonds will however come with warrants that will provide the investors with an extra income  in the years that the Greek economic  growth exceeds acceptable thresholds.

Now the question arises,

Why would the private investors agree to such a bulk loss?

Major reason for this generosity of the private investors is that without this deal, they could end up with zilch. Moreover, if Greece were to miss a bond payment, the impact will be felt upon the other Euro zone countries also. Most of these investors hold bonds of these other Euro Zone countries which would lose value in the aftermath of the default of the Greek government.

Greek bond swap acceptance:

The Greek bond swap deal has been unanimously accepted by around 84 percent of the private investors. Collectively they hold around Euro 172 Billion of the Euro 206 billion bond debt. Though this deal is not a magic solution for the turnaround of the Greek economy, it buys time and provides momentary relief. Greece now has a span of 30 years to make good on its debt. As its economy has been in recession for  5 years now, Greece remains in the clutches of an economic crisis. However in  the light of the current developments, it can optimistically attempt to find its feet with help from Euro zone countries and avoid another bailout. 

(All views expressed above does not belong to the Pro Edge 111 team, & are solely the opinion of the author)

Posted in: Economy