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Greek parliament approves debt swap deal

Greece's parliament has passed a law allowing a massive $133 billion debt write-down with the country’s private investors, clearing the way for Greece to formally launch its debt-structuring program on Friday.

Euro zone economy 2012 2012 02 23Enlarge
A demonstrator wears an 'anonymous mask' during a protest against austerity measures in front of the Greek Parliament in Athens on February 19. A fifth year of recession is expected to pull the struggling nation’s output down 4.4 percent in 2012. (Milos Bicanski/Getty Images)

The Greek parliament has passed a law permitting a massive $133 billion debt write-down with the country’s private creditors, a key element of Greece’s EU/IMF rescue package.

Passage of the law, which also includes controversial measures that effectively strong-arm investors into the agreement, clears the way for Greece to launch its debt-structuring program formally on Friday, according to The Washington Post.

Parliament was almost empty when the emergency bill was passed by a show of hands on Thursday, with the two main parties backing the governing coalition of Prime Minister Lucas Papademos stating their support for the write-down.

Several left-wing groups and the far-right Laos party, which recently pulled out of the coalition, objected to emergency measures being employed to push the bill through the House, the BBC reported.

“You put the debt swap in front of us like a piece of cheese on a mousetrap, which is 10 years of hardship,” MP Dimitrios Papadimoulis said.

Banks and other private investors are being asked to take a 53.5 percent haircut on their bonds, wiping out $142 billion of Greece’s debt. The government is now expected to launch a formal offering to private creditors on Friday, who will have to respond to the proposed exchange within 10 days.

Collective action clauses in the legislation will force all private holders of Greek debt to take a loss on their bonds if two-thirds of investors back the offer.

More from GlobalPost: Greek minimum wage will be cut by 22 percent

Greek lawmakers are now scrambling to pass further austerity measures, ranging from lowering the basic wage by 22 percent and imposing pension cuts to reducing funding for defence and cutting spending on health-care and education.

MPs must back the cutbacks by the middle of next week so that Greece can receive its second big EU/IMF loan, necessary to avoid a chaotic default on March 20 when $19 billion worth of bonds reach maturity, The Wall Street Journal reports.

On Tuesday euro zone finance ministers secured an unprecedented $310 billion bailout deal for Greece, under which the country must undertake to gets its debts down to 120.5 percent of GDP by 2020 and agree to “an enhanced and permanent” presence of EU monitors to oversee economic management.

Today the European Commission predicted that the 17-nation euro zone economy will contract by 0.3 percent in 2012, with a fifth year of recession expected to drag Greece’s struggling economy down by 4.4 percent.  

More from GlobalPost: Euro zone economy to shrink in 2012 

http://www.globalpost.com/dispatch/news/regions/europe/120223/greek-parliament-approves-debt-swap-deal