The Greek parliament, barricaded from protests by workers and pensioners angry over austerity, scrambled on Wednesday to pass laws needed to secure payment of a second international bailout for the debt-laden country. Lawmakers set to work on a flurry of measures demanded by euro zone states in exchange for a 130 billion euro (108 billion pound) rescue, as Dutch Finance Minister Jan Kees de Jager maintained a barrage of scepticism about Athens’ ability to meet its reform commitments.
“To be honest, I have doubts, but it’s the best we could do,” De Jager told French daily Le Monde when asked whether Greece could implement the new bailout programme agreed by euro zone ministers early on Tuesday.
He called for a strengthening of the euro area’s financial firewalls around Greece, combining the current temporary rescue fund with a new permanent 500-billion-euro one due to come into force in July – a move so far opposed by Germany. Credit ratings agency Fitch downgraded Greece further ahead of a planned bond swap under which it will enforce sharp losses on private creditors as part of the bailout programme.
It was the first of widely expected cuts from all rating agencies because Greece will pass into technical default on its liabilities once the transaction is completed, which Finance Minister Evangelos Venizelos said must take place by March 12. “The exchange, if completed, would constitute a ‘distressed debt exchange’,” Fitch said in a statement downgrading Greece to C from CCC. When the bond swap is finished the Greek sovereign rating will drop further to ‘restricted default’ and then will be re-rated again “at a level consistent with the agency’s assessment of its post-default structure and credit profile,” Fitch said.
Under the terms agreed on Tuesday, private holders of just over 200 billion euros of Greek bonds will take a loss of 53.5 percent in the face value of their holdings to ease Athens’ debt burden. Laws to enact the debt swap went to parliamentary committee on Wednesday and are set to be adopted in plenary on Thursday. “To implement all the agreements reached in Brussels on February 21 and meet tight deadlines the formal announcement of the PSI (debt swap) offer must take place no later than Friday,” Venizelos told Parliament’s Economic Affairs Committee.
The legislation requires that investors get at least 10 days to consider the transaction and creates so-called “collective action clauses” (CACs) forcing all bondholders to proceed with the transaction once it has won a specified level of approval.