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23 Feb, 2012 18:52

Greece passes debt reduction bill amidst strikes

The Greek parliament has approved a bill on an unprecedented debt write-down with private investors, a vital part of the EU’s bailout plan, which is set to save Athens over €100 billion.

The bill, which was passed on Thursday, will pave the way for a massive bond swap whereby private investors are to exchange their bonds for new ones of lower value and longer maturity. The restructuring would wipe €107 billion ($142 billion) off the country’s privately-held debt. Greece is now expected to issue a formal offer to bondholders. Officials say this must be done by Friday and completed by March 12, when the country will face debt repayments amounting to €14.5 billion. Athens hopes to get at least two thirds of private creditors to sign up to the deal. This would allow the swap to be enforced on the remaining lenders. There are still concerns, however, that private investors will not be so eager to buy any new Greek debt. They already hold about €200 billion of Greek bonds and with the swap will take a real loss of 73-74 per cent. The private debt restructuring is a key demand put forward by the EU to Greece in exchange for another bailout worth €130 billion ($172 billion) in loans to be paid by 2014. The eurozone finance ministers approved the package on Tuesday, thus averting Greece’s default on all obligations for March. Analysts say that while allowing Athens to service the debt next month, the EU is setting Greece unachievable goals in terms of reducing its sovereign debt by 2020. The EU’s economy continues to shrink and the European Commission expects Greece’s economy to contract by 4.4 per cent in 2012.“This is a very tough call to reduce the debt from 160 per cent of GDP to 120. Even in the best case scenario it will hardly be lower than 130 per cent,” international lawyer Nick Skrekas told RT. In return for the money, the EU is also demanding that Greece amends the constitution so that debt repayments take priority over the country’s other commitments. The EU’s obvious desire to guarantee that Athens honors its obligations after the parliamentary poll in April has one big obstacle in its way though. This is the Greek constitution itself, which can only be changed once in five years. As the Greek government promises to revise it, the next update may be scheduled for no earlier than May 2013.The new relations with the EU and the prospects of more spending cuts have cast a shadow of gloom over the Greek people. While they continue to call for abandoning the eurozone, George Koo,  founder of International Strategic Alliances, believes that, on the contrary, the euro was never the cause of the country’s economical problems and abandoning it will never become a solution.“When you live beyond your needs for as much as Greece has, [you] pay for the consequences,” he told RT. “You can print your own money, the drachma in their case. It may help them to prolong the agony and allow to continue to live beyond their means, printing more and more currency, but eventually you pay a price. Greek currency will have less and less value on the world market. People are just going to avoid it. Adopting [the] euro is not the source of blame.”However, they see nothing ahead but new rounds of austerity measures for years to come. More strikes hit the country on Thursday, when doctors and health workers expressed their anger at the government and international creditors in a 24-hour strike. We can see the future of the EU in what’s happening in Greece today,” says Professor Costas Douzinas of the University of London. “You can push people out of the way until they leave the country if they can or they live off the rubbish bins. At the moment we have 22 per cent unemployment, 50 per cent unemployment among the youth, and a huge increase in homelessness, which may result in a proportional increase in suicide.