Greece: Deal frees us from nightmare

ATHENS: The eurozone rescue for Greece frees the country from a
"default nightmare", the government said yesterday, playing down
deepening shadows of a part default rating from credit agencies.

"Our people has been rid of the nightmare of default," Prime Minister
George Papandreou told the Cabinet and Finance Minister Evangelos
Venizelos told reporters that the deal is a "great relief" for the
country's economy and a sound guarantee for its banks.

"Our
country has achieved historic decisions, and Europe took a huge step
forward," Papandreou told his ministers, who had earlier applauded him
as he entered the meeting.

"Today we can be proud that we
will not leave our children an insurmountable problem. Because we have
rendered our debt problem manageable," the prime minister said.




French-US rating agency Fitch said yesterday that it would consider
Greece to be in limited default under the terms of the second
eurozone bailout, arguing that the deal amounted to a default on
payments on existing debt.

Fitch said the overall accord agreed
on Thursday was an important step forward but because private sector
creditors will lose money on their holdings of Greek government bonds
as a result, then Athens must be considered to be in 'restricted
default' and its debt assigned 'default' ratings.

Banks and
other financial institutions agreed to swap their current Greek
government bond holdings for new debt, taking a loss of 21 per cent in
the process, which Fitch said justified the default rating.

It currently rates Greece CCC, the lowest level.

Once the exchange is completed, however, Fitch said it would then
issue fresh, likely higher ratings for new Greek bonds as the
government's position is strengthened by the bailout.

Fitch
"will assign new post-default ratings to Greece and to the new debt
instruments once the default event is cured with the issue of new
securities to participating bondholders," it said in a statement.

Eurozone leaders and private creditors agreed at an emergency summit
late on Thursday to give Greece a new ?159 billion (RM682.11 billion)
bailout, risking a potential default to prevent the debt crisis from
spreading worldwide.

The eurozone and the International
Monetary Fund will provide ?109 billion (RM467.61 billion) while
private banks will share the costs with about ?50 billion (RM214.5
billion) up to 2014, a total equivalent to US$229 billion (RM682.42
billion).

But those private banks involved in the scheme
estimate the total eventual costs to them at about ?135 billion
(RM579.15 billion). Under the terms of the deal, private creditors who
hold Greek debt that matures in the coming years will "voluntarily"
turn in their bonds and accept new ones that mature far in the future.

Analysts at Switzerland-based investment bank UBS reasoned that the
deal would not be enough to reduce Greece's ?350-billion (RM1.5
trillion) debt load without a more comprehensive credit overhaul later.

"We would contend that any voluntary action provoking a selective
default view from a credit rating agency will not be sufficient to
resolve Greece's fiscal problems," UBS said.

"There is no
suggestion of a sufficiently dramatic restructuring, and as such a
selective default today will eventually have to be superseded by a
haircut-based default," it added.

The finance minister sought to play down the issue yesterday.

"Any
reaction outside the institutional system, any evaluation, has been
answered in advance and has no effect, no real, no monetary-economic
effect. All liquidity needs are met," Evangelos Venizelos told a news
conference.

Private sector creditors globally hold about ?135 billion (RM579.15 billion) in Greek debt maturing by 2020, Venizelos said.

As regards the "intricate" details of the rollover, which are still
being hammered out, Venizelos said some bonds held by banks would be
exchanged with new 30-year maturities at 100 per cent of face value but
others would be traded at 80 per cent.

Papandreou also said
that Greece had secured lower interest on an earlier ?110-billion
(RM471.9 billion) bailout from the EU and the International Monetary
Fund, of which it has so far drawn around half the available funds.

He noted that as a result, Greece's debt would be reduced by ?26.1
billion (RM111.97 billion) or 12 per cent of annual output, and that the
average cost of servicing the debt for the next 40 years would fall to
an interest rate of below 5 per cent. - AFP