Saving Greece

Article excerpt

BRUSSELS, Belgium (DPA) - Friday's news that Greece had managed to strong-arm a large enough number of private lenders to forgive part of its public debt was greeted with relief by European Union officials and with skepticism by financial analysts.

"We have turned a corner in the crisis. We are sailing towards calmer waters,'' EU President Herman Van Rompuy posted on the micro-blogging website Twitter.

EU Economy Commissioner Olli Rehn declared himself "very satisfied'' that about 83 percent of creditors had agreed to take part in a bond-swap deal expected to ultimately shave about 100 billion euros (132 billion dollars) off Greece's debt mountain.

The participation rate is expected to rise over 95 percent once the Greek government triggers so-called collective action clauses (CAC), which would force losses on the remaining part of bond holders that have so far refused to join the debt forgiveness exercise.

The CAC decision - which eurozone finance ministers have confirmed will have to be taken - might cause a form of insurance against default known as credit default swaps (CDS) to be paid out to some Greek bond holders. Such a scenario was seen as worrying in the past months, because when CDS were paid out after the collapse of US investment bank Lehman Brothers, a chain reaction led to the global financial crisis of 2008-2009.

This time, however, experts say markets are prepared and no panic is expected. The problems with the latest Greek rescue plan are different, they say. All the new rescue package will do is "provide Greece and the rest of the eurozone with a bit of time, at best,'' Ben May from the London-based Capital Economics research outfit predicted.

Sony Kapoor, head of the Re-Define financial think tank and a well-known critic of the eurozone's response to its debt crisis, is convinced that a third bailout for Greece is inevitable.

Simon Penn, an analyst with Swiss bank UBS, was less resolute. "As things stand, people would be about 50-50'' about the likelihood of a new bailout, he told DPA.

The latest aid package is meant to cover the country's needs until 2014. But few believe that after that date Athens will be able to finance its debt on its own. "They are not going to be able to come back to the market in 2015,'' Penn said. …