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Greece to Force Cuts on Bondholders

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Following a hard-won agreement for a second bailout from the European Union, European Central Bank  and the International Monetary Fund, known as the troika, Greece has more work to do. On Wednesday, Parliament began debating a new law to compel reluctant private bondholders to accept steep write downs on its sovereign debt once two thirds of such investors have agreed to do so. A parliamentary committee approved it.

Reuters reported that the bill, called Collective Action Clauses (CACs), will impose the debt swap of existing bonds for new, lower-value debt with lower coupon rates on Greece’s creditors.

The debt swap is an essential part of the 130 billion euro ($172 billion) bailout deal, since it will substantially cut Greece’s liabilities, but it has been held up in part by hedge funds reluctant to accept cuts and instead considering triggering credit default swaps for full repayment. There has also been substantial debate over the coupon rate on the new bonds.

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According to Lucas Papademos, prime minister, the debt swap must be completed by March 10–only 10 days before payments of 14.5 billion euros are due on existing debt.

The debate on the bill is scheduled to be met by demonstrators protesting another facet of the bailout deal–additional austerity measures adding to the burden already faced by Greeks laboring in the fifth year of a recession.

Angered over cuts in pensions, pay and jobs, as well as by a provision incorporated into the bailout that imposes a permanent team of foreign inspectors to ensure that Athens complies with the package terms, demonstrators are expected to turn out in force to protest what they see as an impossible situation. Last week’s adoption of additional austerity measures demanded by the troika saw demonstrations turn to riots, with buildings in Athens set afire and violent confrontations between protestors and police.