Greek PM says 50 percent haircut means debt now sustainable

Thu Oct 27, 2011 12:43am EDT
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By Harry Papachristou

BRUSSELS (Reuters) - A deal that imposes 50 percent losses on private sector bondholders means Greece's debt burden will be sustainable, Greek Prime Minister George Papandreou said on Thursday.

Greece will produce no more primary budget deficits from next year, but some of the country's banks may face temporary nationalization as a result of the debt relief, he warned.

"The debt is absolutely sustainable now," Papandreou told a news conference after a meeting of euro zone leaders, which reached agreement with private investors on a 50 percent write-down.

"Let's hope a new and better day dawns, both for Greece and for Europe... Greece can settle its accounts from the past now, once and for all."

Debt-laden Greece needed the drastic measure to avoid a sovereign bankruptcy that was threatening to engulf other weak members of the eurozone periphery such as Ireland, Portugal and Italy.

Under the 130-billion euro deal, Greece will obtain 30 billion euros upfront from other governments, as a guarantee for banks that will take part in the voluntary reduction of 100 billion euros of the debt they hold.

Papandreou said he expected the deal, which will be implemented through a bond exchange, to be wrapped up by the end of the year.

The deal cuts Greece's debt by 50 percentage points of GDP, compared with just 12 percent under a previous EU deal struck in July, Papandreou said.   Continued...