Greece Secures Biggest Debt Deal in History

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Byline: Elena Becatoros and Gabriele Steinhauser Associated Press

ATHENS, Greece -- Greece's private creditors agreed Friday to take cents on the euro in the biggest debt writedown in history, paving the way for an enormous second bailout for the country to keep Europe's economy from being dragged further into chaos.

Greece would have risked defaulting on its debts in two weeks without the agreement, sparking turmoil in the financial markets and sending shock waves through the other 16 countries that use the euro.

Prime Minister Lucas Papademos called the deal -- which shaves some $138 billion off Greece's $487 billion debt load -- an important "historic success" in a televised address to the nation Friday night. "For the first time, Greece is not adding but taking debt off the backs of its citizens."

The country said 83.5 percent of private investors holding its government debt had agreed to a bond swap, taking a cut of more than half the face value of their investments as well as accepting softer repayment terms for Greece.

The radical swap aimed to put the country's debt-ridden economy on the road to recovery, and was a key condition to secure a $172 billion rescue package from other eurozone countries and the International Monetary Fund.

Charles Dallara, the managing director of the Institute of International Finance, which negotiated the deal with the Greek government on large investors' behalf, described the bond swap as "the largest ever" restructuring.

"This has been painful and the pain is not over yet. But I now can see light at the end of the tunnel for the Greek economy," Dallara told Greece's Mega television. He estimated Greece could return to the markets "within a few years" and said that if recovery continues, "I think the risk for Greece and the risk on the eurozone will be very manageable."

Of the investors holding the $234 billion in bonds governed by Greek law, 85.8 percent joined. The deadline for those owning foreign-law bonds was extended to March 23.

Creditors holding Greek-law bonds who refused to sign up will be forced into the deal -- breaking a taboo that the eurozone had upheld until just weeks ago.

The decision to force losses on some bondholders means that the debt relief will trigger payouts of so-called credit default swaps, a type of insurance on bonds. …