Optimism growing as deadline on Greek debt deal passes

GREEK government officials and world markets appeared confident last night that a high number of private investors would participate in a major debt reduction programme for the troubled eurozone country as the deadline on the deal passed.

A senior government official said that no extension was being planned.

The landmark agreement is aimed at slashing the country's national debt by €107 billion (£90bn), with private bond holders accepting a face-value loss of 53.5 per cent, in exchange for new bonds with more favourable repayment terms.

Initial results of participation in the exchange are due to be announced early today.

The swap is a critical part of the country's second international bail-out. If too few investors agree and it fails, the crisis-hit country will probably default on its debt in less than two weeks when a big bond repayment is due, prompting renewed turmoil in financial markets.

A government official in Athens said last night that, as of Wednesday night, the take-up on the offer had topped 75 per cent.

Charles Dallara, head of the Institute of International Finance, which has been negotiating on behalf of large private creditors, said he believed participation would be “very, very high” and that he was “quite optimistic" the deal would come together.

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

Major Greek and European banks have signed up to the deal, though several Greek pension funds, including ones representing journalists and police, embarrassed the government by holding out.

Markets have been optimistic that Greece will muster enough support. The Athens stock exchange closed up 3.1 per cent, while the Stoxx 50 of leading European shares rose 0.9 per cent and the euro was trading 0.8 per cent higher.

The bond swap is a radical attempt to 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 repay the money it owes.

“Obviously for the majority of bondholders it does make sense to accept the deal as it is better to get something rather than nothin,” said Gary Jenkins, managing director of Swordfish Research.