Greeks Strike Deal to End Financial Crisis

Posted March 9th, 2012 at 12:10 pm (UTC-5)
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Greece says the majority of the country's private lenders, including financial institutions, have agreed to a bond swap deal to help it eliminate a $142-billion debt and avoid a default on its financial obligations later this month.

Greece intends to use legislation to force the remaining holdouts to sign on to the agreement.

The International Monetary Fund called the deal “an important step” toward reducing Greece's financing needs. Director Christine Lagarde on Friday welcomed the cooperation of the private sector in putting Greece on a path of growth.

Speaking in the southern French city of Nice Friday, French President Nicolas Sarkozy praised the deal, saying it means “the problem is solved” and “a page in the financial crisis is turning.”

Fitch Ratings, however, downgraded Greece's credit rating from “C” to “Restricted Default.”

The chief economist for Alpha Bank in Greece says the debt relief deal will have a positive impact on the growth of banks and the economy.

“It offers a big debt relief and this makes it … obviously easier, much easier to be able to achieve the primary surpluses that you have in the program, in the sense that there is momentum that improves confidence in the economy. We expect this to bring back some of the deposits to the banking system that have left and therefore to kickstart if you like a process of recovery of the Greek economy that will make implementation the targets in the budget much easier.”

Greece has adopted widespread austerity measures, cutting wages and pensions and eliminating thousands of government jobs, to meet the demands of international lenders so it could secure a new $172-billion bailout. It is the country's second rescue package in two years.

With Greece planning to pay back the remaining debt it owes to the financial institutions over an extended period, those that bought the Greek bonds will ultimately lose about three-fourths of their investments.

Five small Greek pension funds holding about one percent of the bonds eligible for the write-down have rejected the deal, as have several investment funds and Germany's best-selling newspaper, Bild.