Last week’s decision by Greece to burn bondholders by securing a crucial debt swap has been welcomed by European leaders.
Announcing the deal, Greek Finance Minister Evangelos Venizelos described the swap as an “exceptional success”. The deal offers the Greek government the opportunity to receive a second bailout worth €130bn, which had been blocked for several weeks by Eurozone finance ministers.
Under the debt swap, over 85 per cent of investors who signed up to the deal and the remaining 15 per cent of bondholders, who will be forced to accept the terms of the restructuring, will exchange their existing debt for new bonds at a much lower interest rate. Bondholders will see at least €105bn wiped off the value of their investments.
While Metro Éireann accepts that the debt-swap will drastically reduce Greece’s debt burden, there is no guarantee that it is the end of the country’s debt crisis. Indeed, the prospect of the Greek economy bouncing back in the next 10 years is slim.
Greece’s 2011 GDP figures released last week are evidence of this. The economy contracted by 7.5 per cent in the last three months of 2011, and things are certainly set to get worse as a new round of austerity measures is expected this month, amid rising unemployment.
The decision to burn bondholders will also have a multiplier effect in countries where those investors who have lost their capital operate. Greece might have a lifeline for now, but at what cost for Europe?
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