The restructuring involves losses in excess of 50 percent for private investors — a once unthinkable event that many euro-zone officials wanted to avoid — and triggered payouts under the bond insurance contracts known as credit-default swaps, also a stigma Europe tried to dodge. But steady changes in recent months to the political leadership of wayward countries such as Italy, a more stern line at the International Monetary Fund and new European Central Bank policies helped temper the effects of the region’s first-ever sovereign debt write-down.
The sequence of events this week — culminating in the successful debt exchange agreement and announcements by the European Commission and the International Monetary Fund that new international loans for Greece will move forward — led European leaders to declare the crisis in abeyance.
After Greece announced that it had reached targeted savings of roughly $138 billion under the debt exchange, European leaders said they would move forward with their portion of a new $170 billion rescue package for the country, and the IMF said it would contribute roughly $36 billion as its share.
The IMF contribution will be offset substantially by about $30 billion Greece is due to repay the fund over the next four years under loans from an earlier rescue package.
The amount is far larger, compared with the size of Greece’s economy, than the IMF has provided to other troubled countries. But IMF managing director Christine Lagarde said it was warranted given the scale of Greece’s difficulties and the long-term work needed to rebuild its competitiveness.
“The scale and length of the Fund’s support is a reflection of our determination to remain engaged,” she said in a written statement. The IMF executive board will likely approve the new loans next week.
Relief in Athens
Few expect the debt restructuring to end Greece’s years-long struggle with a dysfunctional economy or to radically alter its fundamental financial problems.
Still, Greek officials were relieved. If enough investors had not signed up for the deal, the country would probably have defaulted within weeks when a major bond payment came due.
“I wish to express my appreciation to all of our creditors who have supported our ambitious plan of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavor,” Greek Finance Minister Evangelos Venizelos said in a statement. The changes “will return Greece to a path of sustainable growth.”
Investors holding more than 85 percent of Greece’s outstanding $260 billion in privately held bonds voluntarily accepted the terms of the deal — a bitter pill but better to many than the alternative of a disorderly default that might have forced Greece to leave the euro and prompted unpredictable repercussions.